PwC: Health Services M&A Remains Durable Despite Headwinds

What You Should Know: 

– Health services M&A activity has demonstrated remarkable durability, weathering a complicated macroeconomic and political environment to remain well ahead of pre-COVID levels, according to PwC’s US Deals 2025 Mid-Year Outlook for both Health Services and Pharmaceutical and Life Sciences. 

– Through May 15, 2025, the market saw 445 announced transactions, bringing the last-twelve-month (LTM) total to 1,265 deals with a disclosed value of approximately $64B, according to a new midyear outlook report.

– While LTM deal volume and value are down slightly compared to 2024 (7% and 8% respectively), the market has been cushioned by a $17.9 billion megadeal involving Walgreens Boots Alliance and Sycamore Partners, which contributed about 28% of all disclosed value.

Key Subsector Trends: “Other Services” and Behavioral Health Lead the Way

The report highlights strong performance and investor interest in several key subsectors, demonstrating the diverse opportunities within health services.

• “Other Services” Leads in Value and Volume: This broad category—which includes contract research organizations, ambulatory surgical centers, and home infusion services—was the top performer with 454 LTM deals and more than $31 billion in value.
• Physician Groups Remain Active: This segment continues to be a hub of M&A activity, with 413 deals and $11.3 billion of disclosed value.
• Behavioral Health is Back: Investor interest in autism, addiction, and outpatient psychiatry platforms has reignited. In the first quarter of 2025, behavioral health deal flow jumped over 35% year-over-year, with deals in the autism space doubling to their highest quarterly count since 2020.

Emerging Trends and Market Dynamics

Several key trends are shaping the current deal environment, from new sources of capital to an evolving regulatory landscape.

• New Money Eyeing Hospitals: A notable development is the emergence of new, tech-oriented capital looking at the hospital sector. General Catalyst’s proposed buyout of nonprofit Summa Health, the first-ever venture capital acquisition of a hospital system, signals fresh interest in digital turnarounds for acute care assets.
• Regulators Raising the Bar: The Federal Trade Commission (FTC) continues to challenge perceived anticompetitive hospital and payer combinations. This has led to closer scrutiny of vertical integration, extended timelines for deals, and increased diligence costs for investors.
• Innovative Deal Structures: In response to high interest rates, investors are increasingly leaning on creative deal structures such as minority recaps and preferred equity to bridge valuation gaps and keep deal flow alive.
• AI Hype vs. Reality: While AI is on every company’s agenda, and many organizations claim significant ROI, there is often a lack of data to support these claims. The report notes that investors should be ready to act when use cases prove themselves but remain wary of overpaying for AI technology in the current environment.

Looking Ahead: A Resilient Market Poised for Continued Activity

Despite headwinds from regulatory uncertainty and valuation gaps, the report concludes that the health services M&A market remains resilient. A growing pipeline of assets, significant levels of available capital for both corporate and private equity players, and expectations for future interest rate cuts are all anticipated to drive increased deal activity throughout the remainder of 2025.