Cautious Optimism in 2024 for Healthcare M&A

2024 was supposed to mark the start of a significant comeback for healthcare mergers and acquisitions (M&A). Yet with the first half of the year at an end, the anticipated resurgence is uncertain. Still, there are some promising signs, and regional variances are providing a hopeful outlook for the remainder of the year.

2023 Healthcare M&A

The healthcare industry recalibrated in 2023 with many companies and investors taking a cautious approach, focusing on internal consolidation and operational efficiencies rather than aggressive expansion. As a result, healthcare M&A activity increased moderately, aided by some strategic transactions.

Several factors contributed to the uplift, including consistent interest from investors, spurred by demand for innovation and technological advancements to address emerging and quickly developing healthcare challenges, and improving economic conditions.

These conditions then set the stage for an uptick in healthcare M&A at the beginning of 2024. So far, however, announced deals haven’t reached expected levels. Biopharma M&A, the most active subsector, representing 45% of deal volume, rose just 4% in the first quarter this year compared to the same time in 2023. Yet, there are some green shoots, especially regionally.

Green Shoots and Region-Specific Optimism in 2024

Still, improving economic conditions, supportive regulatory environments, and a strong pipeline of innovative healthcare companies in the UK and Nordics are helping to spur activity. UK healthcare deal kickoffs on Datasite’s platform are up 27% year-over-year from April 2023 to March 2024, while Nordics activity rose 11% in that same period. The UK government’s commitment to fostering innovation, through initiatives such as the Life Sciences Vision and Industrial Strategy, has created a favourable environment for healthcare M&A, while the Nordics has become a hub for healthcare innovation, with countries like Sweden and Denmark leading the way in medical research and development.

Conversely, healthcare M&A activity in other EMEA regions and in North America isn’t performing as well. Various factors, including economic uncertainty, regulatory challenges, and geopolitical tensions, have contributed to this uneven landscape. On top of that, election years are always a time for caution and anticipation for M&A in general, and the UK, US and EU elections are no different.

The elections won’t be the only factor influencing healthcare M&A for the rest of the year and into 2025, but they will be significant in laying out the regulatory landscape. To add to it, technological advancement within healthcare, along with private equity influences will be key in shaping deals within the industry.

The Impact of the 2024 Election Year on M&A

The fact that 2024 is an election year in several major economies plays a crucial role in shaping M&A activity across all sectors, and healthcare is no different.

In the United States, the outcome of the presidential election will have far-reaching implications for healthcare policy and regulation. Similarly, recent elections in France and the UK are expected to result in changes of policies, regulation, and taxes. This may account for the slower-than-hoped-for start to 2024, as dealmakers awaited confirmation on election dates and results.

Private Equity Involvement in M&A

Private Equity (PE) firms have long recognised healthcare as fertile ground for investment. In 2024, this trend shows no signs of slowing down. PE investors are particularly focused on high-growth areas such as healthcare IT, life sciences and medical devices. With the global pandemic having accelerated the digital transformation of healthcare, PE firms are investing heavily in companies that develop electronic health records systems, telemedicine platforms and health analytics tools to enhance patient care, streamline operations, and improve data management. These technologies not only improve the efficiency and effectiveness of healthcare delivery but also generate significant cost savings, making them an attractive target for investment.

PE is also interested in life sciences, including biotechnology and pharmaceuticals that are involved in drug development, clinical trials and biomanufacturing due to the potential for significant returns. And PE investors are looking for investment opportunities that improve patient outcomes, while reducing healthcare costs, investing in medical technology, such as minimally invasive surgical instruments, diagnostic devices, and wearable health monitors

Innovation and M&A

To stay ahead of the competition and provide better care to patients, many organizations are also looking to acquire innovative technologies, products, or services. Some of the top areas of investment interest include digital health, such as telemedicine, remote monitoring, and digital therapeutics; biotechnology, including acquiring cutting-edge technologies and expanding product pipelines; and medical devices to improve patient care.

Challenges and Considerations

Despite the positive outlook regarding the economic environment and innovation across the healthcare industry, there are still several challenges and considerations that generally apply to all M&A deals, which could impact the pace and scale of dealmaking activity in this sector for the remainder of 2024.

Increased regulatory scrutiny, particularly in the context of antitrust concerns, can slow down the approval process for large transactions. Given its critical importance, the healthcare sector often attracts significant attention from regulators, necessitating careful planning and compliance. This is especially true when it comes to potentially sensitive patient data, which must adhere to strict protection laws such as the Health Insurance Portability and Accountability Act (HIPAA) in the US, and the General Data Protection Regulation (GDPR) in Europe.

Continued economic uncertainty, driven by factors such as inflation, interest rate fluctuations, and geopolitical tensions can also impact corporate confidence and M&A activity. Furthermore, discrepancies in valuation expectations between buyers and sellers can pose a significant challenge. With market conditions evolving rapidly, aligning on fair valuations will be crucial for healthcare dealmaking. Companies will need to conduct thorough due diligence and leverage expert valuation services to bridge gaps and reach mutually agreeable terms.

Following that, successful M&A requires effective integration. Post-merger integration in healthcare is particularly complex due to differing IT systems, legacy components, corporate cultures, and operational practices. With the advent of AI, this has become an even bigger consideration for companies looking to acquire and requires thorough due diligence and risk aversion.

While the anticipated boom in healthcare dealmaking activity has not fully materialised so far this year, there are clear signs of activity across various healthcare subsectors and potential growth in specific regions. The conclusion of election cycles, continued economic recovery, and technological advancements are expected to drive a significant increase in M&A in the latter half of the year and into 2025.

Dealmakers and stakeholders in the healthcare sector should remain vigilant, adaptable and focused on due diligence processes, leveraging opportunities as they arise while navigating the complex landscape of regulatory and economic challenges. This way, they can position themselves to capitalise on opportunities, whilst simultaneously driving long-term growth and innovation throughout their organizations and industry.