In mid-October, McDermott Will & Schulte’s Healthcare Private Equity New York conference brought healthcare leaders together to analyze the key challenges and trends shaping the industry in 2025. For one busy day, attendees heard from a series of panels that guided them through the complexities of private equity in healthcare and highlighted the most compelling investment sectors.
It should be noted that media at the conference were bound by the Chatham House Rule, so we will refer to panelists anonymously unless we have received direct permission to use their names.
“The boom days are back,” one panelist declared, echoing the enthusiasm at the conference around the increase in deal activity in the healthcare M&A market. According to data captured in the LevinPro HC database, deal volume increased by 7% in Q3:25 compared to Q2:25 and by 3% from Q3:24, so the positive attitude is warranted based on the numbers.
According to speakers at the conference, this optimism is fueled by a more stable market, private equity divestments after long hold times and a focus on technological capabilities. The sectors generating the most excitement for increased deal volume were digital health, technological services, physician groups, infusion services, behavioral health and hospice care.
Earlier in the year, as the Trump Administration took office, experts were cautiously optimistic that 2025 would see higher deal volume, but the wave of tariffs and reimbursement changes rattled the markets. However, now, according to a few select speakers at the conference, tariff risk has decreased, leading to a steadier market.
“Despite economic pressures, there’s renewed enthusiasm for new deals and confidence in balance sheets,” said one speaker from a West Coast firm. “We’re seeing more add-on acquisitions as companies justify tech and channel investments to enable cross-selling. Good assets with strong fundamentals continue to trade at strong valuations.”
Several panelists spoke to the idea that there’s a sense of urgency for companies to bring their assets to market, as no one wants to be left behind. To ensure this, companies are broadening their scope and integrating technology to demonstrate a strong ROI.
After the conference, the Levin team connected with Julia Kastner, CEO of Brydon Health, a private equity-backed company focused on acquiring healthcare technology platforms, to further discuss trends in the healthcare technology spaces, particularly the competition amongst companies to stay ahead of the curve.
“There are large healthcare technology companies that are trying to innovate along with the little guys, but the little guys have very low costs to build their features,” said Kastner. “It will be very interesting to see if incumbents can maintain control over their customers by keeping up with smaller companies.”
Much of this activity is driven by strategic buyers, including health systems, payers, drug distributors, life sciences firms, medtech companies, pharma players and contract service organizations. Over the past 18 months, these large-scale strategic buyers have taken on a notably greater role, according to one speaker.
“Strategic partners can help on the purchasing front, increase top-line growth and improve patient outcomes, all while offering physicians financial participation and equity,” noted a panelist.
On the flip side, not everybody agreed on the reasons behind the uptick in activity, presenting a slightly more pessimistic viewpoint. There was even talk of companies selling their ‘B assets’ just to have something on the market.
“Companies are taking valuations that are worse than what they wanted two years ago, but better than nothing,” noted one panelist who works at a New York-based private equity firm.
While this is a gloomy perspective, it hints at a more realistic observation of the market. Several people noted that 18-24 months ago, companies were holding out on selling their assets because valuations were not as high as one may have expected. Now, companies are more willing to sell their assets because they understand that valuations are not the same as they were in 2019 or even 2021, so there’s a ‘take what you can get’ attitude.
“I’m not sure whether it’s because sellers are getting more reasonable or buyers are getting more aggressive,” one speaker from a financial institute said. “But either way, it feels like there’s a bit more connectivity there and that drives activity.”
Technology, and AI in particular, captivated the conference. It was the undeniable focal point of almost every panel and a subject many attendees were most eager to explore. Several panelists argued that AI has moved from an “esoteric concept” to “true application”, especially in revenue cycle, recruiting, retention and clinical documentation.
“AI is in an arms race across the digital health space,” said Kastner.
The incorporation and capabilities of AI have broadened investor interest from traditional healthcare markets to high-innovation spaces, such as digital health and medtech, fueling an increase in overall deal volume.
At the Healthcare Private Equity Miami conference in March, also hosted by McDermott, the prevailing sentiment was that AI would be integrated into all facets of healthcare by year’s end. While AI is undeniably influencing key areas, such as patient-provider interactions and investment strategies, a few panelists said that its adoption has not been as comprehensive as predicted for multiple reasons.
“Investors show strong positive sentiment toward AI’s role in deal processes, but far less enthusiasm for its impact on execution and operations,” said one speaker from a multinational consulting firm. “There’s a maturity that still needs to happen.”
“There’s been a real lack of emphasis on change management and an overemphasis on technology,” said another speaker from a private equity firm.
The panelist went on to say that until companies view AI as a change-management tool, costs could remain high, leading to frustration with the product.
“Organizations are going to spend a lot of time and resources cleaning up legacy data to take advantage of all of the new technologies that are coming,” said Kastner, expanding upon how the implementation of AI into healthcare has been slowed down by data itself, which is the backbone of AI.
Despite the slow pace, it’s clear that investment interest in AI will not wane any time soon.
The increased importance of pharmaceutical services was another topic that kept popping up throughout the conference.
“Pharma services are expanding, from drug manufacturing and supply chain to helping providers manage drug administration and margin pressures, both upstream and downstream,” a panelist said.
In this conversation, several speakers also discussed how U.S. companies are collaborating with European companies to build on existing infrastructure to help move specialty drugs beyond American markets and expand globally.
While there is optimism for the pharmaceuticals market, there are also headwinds causing trepidation. Due to the Trump administration’s 15% tariff on all imports, some worry that the tariffs will negatively impact the pharmaceutical and medtech markets, which rely on overseas manufacturing. While there are exceptions for certain pharmaceutical products, the tariffs threaten to raise drug prices and impact supply chains. This is leading companies to rethink their revenue and manufacturing models, potentially slowing M&A activity.
One speaker also noted that the emphasis on pharmaceutical services highlights an emerging trend of providing direct-to-consumer strategies that could mitigate substantial margin pressure.
Despite the general optimism, speakers warned that future deal activity is not guaranteed, as the market grapples with the uncertainty introduced by the “One Big Beautiful Bill” (OBBB). This legislation presents a contradictory picture for investors, particularly concerning rural healthcare.
“Providers that rely heavily on state subsidies, especially through Medicaid, are watching policy shifts with concern,” one speaker noted. “The administration’s push to boost enrollment while simultaneously curtailing new Medicaid expansion is expected to massively impact payers.”
This policy-driven instability is projected to cause “substantial margin erosion” for many health systems, hitting “safety net hospitals” the hardest, according to one speaker. Panelists warned that these Medicaid cuts could devastate rural health systems, halt deal activity in vulnerable markets and further decrease access to care.
However, the OBBB includes a considerable fund intended to support healthcare communities in rural America.
“The hope is that the $50 billion allocated will spur innovation, but we haven’t yet seen major outreach from the investor community,” said one speaker. This hesitation suggests that the financial risks and operational instability from the Medicaid cuts are currently outweighing the long-term promise of the innovation fund, leaving investors cautious and waiting for clear ROI pathways to emerge.
So, while the conference presented plenty of reasons to be optimistic about the market and a steady increase in deal volume, there are key headwinds that should not be overlooked.
