Experts Predict Strong Merger and Acquisition Activity for 2023

December 14, 2022 - Experts are predicting that the healthcare industry will see substantial merger and acquisition activity in 2023, despite most sectors facing headwinds in 2022, according to data from PwC.

PwC’s 2023 Deals Outlook Report for health services and pharmaceutical and life sciences assessed merger and acquisition deals that happened in 2022 and what the sectors will likely experience in 2023.

Deal volumes within the health services sector increased from 2021 levels, with year-over-year volumes growing in the first three quarters of 2022.

Meanwhile, slowed activity in Q4 so far has led to lower volumes compared to 2021. In Q4 2022 through November 15, there were 251 deals announced compared to 307 during the same period in 2021.

Deal values peaked in 2021, with transactions generating $217 billion. Values declined in 2022 and were at $127 billion through November 15. Almost half of the deal value in 2022 ($62 billion) was generated from mega transactions where the smaller party had an annual revenue of more than $1 billion.

The home health and hospice sub-sector helped drive transaction value in 2022 as only one of two sub-sectors that saw increased deal value. There were 114 home health and hospice deals in 2022, contributing to a 74 percent increase in deal value from 2021.

Two mega transactions were behind much of this growth: CVS’ acquisition of Signify Health for $8 billion and UnitedHealth/Optum’s acquisition of LHC Group for $6 billion.

Overall, there were seven mega transactions announced this year. In addition to the two home health and hospice deals, there was an $18 billion merger between two healthcare real estate investment trusts and an $8.9 billion acquisition of Summit Health-City MD by Village MD.

The remaining three mega transactions were Quidel Corporation’s acquisition of Ortho Clinical Diagnostics, Mediclinic International’s acquisition by a consortium of investors, and Chubb’s acquisition of Cigna’s life, accident, and supplement benefits businesses, the report shared.

Traditional buy-side activity made up most deal volumes during 2022, but PwC researchers predicted that the health services sector will see increased divestiture activity in 2023.

“Given the variety of healthcare participants (e.g., for profit, not for profit, and PE, etc.), each of the parties have varied processes for decision-making, but growth is the one goal they all share,” the report stated. “As management teams assess growth, the power of strategically reviewing and aligning an organization’s portfolio is critical to shareholder returns.”

Timely decision-making, embracing the divestiture process, and navigating entanglements can also help entities generate value through divestitures, researchers said.

Going forward, health services entities will still have to face antitrust regulatory reviews and Medicare reimbursement cuts. In addition, new challenges await, including increased activity from cyber criminals, rising clinical labor wages, and workforce shortages.

The pharma and life sciences sector also saw low merger and acquisition activity in 2022. Overall deal value fell 49 percent ($137.8 billion), and volumes decreased by 28 percent (266 transactions) compared to 2021.

However, PwC researchers predicted that activity will revert to prior year levels across all sub-sectors in 2023, including biotech and medtech.

Specifically, mergers and acquisitions in the biotech sphere will continue to focus on oncology and immunology, but the central nervous system, cardiovascular disease, and vaccine spaces will also see activity.

The medtech sub-sector experienced uneven capital market performance, but strong cash flow in 2023 is expected to stabilize merger activity.

Despite optimistic projections for 2023, the pharma and life sciences sector will also face challenges, such as antitrust reviews and the rising cost of capital, researchers concluded.