M&A deal
Merger and acquisition consolidation, common in many industries, has slowed for health care in 2024 due to multiple factors, writes Shawn Janus, national director of health care services for Colliers. The economics were strained as increased interest rates, the resulting capital costs, increased regulatory scrutiny, and a slower-than-expected pandemic recovery made large transactions harder to finance. However, a few fundamental factors will likely drive M&A activity in the sector through 2025.
Health care M&A deal volume dropped 20% between 2023 and 2024. Total deal values were down 29% year-over-year. Deal volume and value fell respectively by 18% and 31% in the pharmaceutical and life sciences sectors. Health care services saw year-over-year drops of 22% in volume and 21% in value.
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Nevertheless, “private equity remained active, particularly in medtech and digital health,” Janus wrote. Some of the standout transactions were KKR's 50% stake in Cotiviti, the $4.1 billion acquisition of Solventum’s purification business by Thermo Fisher Scientific, and AbbVie’s purchase of ImmunoGen for $10.1 billion.
These deals' themes were “innovation-driven investments” in digital health, specialized treatments, and technology. From an investment fundamental view, innovation expectations would increase value because of future contributions to new products, services, and revenues.
Janus expects the momentum to continue due to some ongoing factors. The first is expanding investment in health care technology. With long-standing staffing shortages expected to continue, driving up labor costs, health care companies need new paths to greater efficiencies. Investors and providers are looking at such technologies as remote patient monitoring, personalized medicine, and automation of administrative processes.
Expect more consolidation in pharma as patent expirations pressure larger companies to find new intellectual property to provide protected revenues. Acquisitions are a clear path to use the developments of multiple firms to increase new product reach. This will be active in such areas as oncology, gene therapy, and rare diseases.
Hospitals continue to feel financial pressure after the pandemic with increased reports of bankruptcies and closures. Consolidation is a natural result as larger health systems acquire struggling ones to consolidate functions for greater efficiency while achieving broader reach and additional patients. However, regulatory scrutiny will remain a constraint.
Private equity will continue expanding into health care through technology-enabled services like physician practices and pharmaceuticals. Blackstone looks to sell HealthEdge for $2.5 billion while OMERS wants $2 billion for Premise Health. Sycamore Partners is looking to acquire Walgreens Boots Alliance, possibly to split it into three operating companies.
Retail pharmacies are seeing heavy change and restructuring, influencing health care M&A. “Health care providers are repurposing former pharmacy sites into urgent care centers and specialty clinics, addressing gaps in care access,” Janus wrote.
Health care providers and investors will need to keep track of such trends and remember that for any of these changes, smart CRE strategies will be critical.
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