Private equity’s share of healthcare M&A activity may have plateaued in 2022 as macroeconomic conditions are affecting private equity’s impact in the sector.

Private equity’s share of healthcare M&A activity may have plateaued in 2022 as macroeconomic conditions are affecting private equity’s impact in the sector. According to the LevinPro HC database, a record 2,429 M&A deals were reported in 2022. Private equity accounted for 966 of the deals, representing 40% of the acquisitions. This was a rise from 39% in 2021 (866 of 2,240) and 32% in 2020 (429 of 1,344).

However, the upward trend in recent years may have peaked in 2022 as the most recent six-month periods show a declining Private equity trend in health care. There were 1,118 healthcare M&A deals posted in 2023 through June 30. Private equity accounted for 406 of those transactions, representing 36% of the total. Private equity produced 38% of the deals in the second half of 2022 (450 of 1,178) and 41% in the first half of 2022 (516 of 1,251).

Hector Torres, the managing director in the global healthcare team at DC Advisory based in Chicago, cited a staffing shortfall in health care when asked to comment on the trend.

“From an M&A perspective, the healthcare industry staffing shortage can have detrimental impacts,” he said. “Lack of adequate clinical resources and personnel can negatively impact near-term financial performance for healthcare companies considering and/or actively pursuing M&A transactions. This can result in everything from lower valuation outcomes to outright process terminations and/or renegotiations of key economic terms.

“The healthcare provider shortage is more than an inconvenience. It’s a public health crisis. And it has been building since before the COVID-19 pandemic. Healthcare staffing shortages lead to

Poor patient outcomes that can include hospital-acquired infections, patient falls and increased chances of death. Provider shortages in certain areas mean that large swaths of the population don’t have enough doctors or nurses to provide them with emergency care, treat their chronic illnesses or deliver their babies.”

The prospect of increased government oversight presents another potential roadblock for healthcare M&A activity. According to “Healthcare Trends and Challenges for Private Equity in 2023,” a story published by Wolters Kluwer in March, “federal antitrust enforcement will accelerate in 2023 and may delay mergers. Health care is a highly regulated industry, so these challenges are not new. As healthcare deals gain traction and size, antitrust reviews may begin to pay more attention to cross-sector convergence with non-traditional players.”

The Wolters Kluwer article stated that The Department of Justice is “especially interested in rollup transactions that consolidate market share and, consequently, negotiating power.” Also, the department is concerned about the lack of filings and conflicts of interest involved in the appointment of private equity representatives to boards of competing companies.

“Dealmakers must prepare for government agencies to examine transactions closely, particularly related to labor and future competitive impacts,” the story stated. Also cited were labor and wage pressures.

“Labor shortages and constantly evolving employment laws continue to challenge employee retention in the healthcare sector,” according to the Wolters Kluwer story. “Furthermore, wage inflation only complicates matters, rising by 5% in the U.S. in 2022. Healthcare providers are being impacted disproportionately by this increase since salaries and wages represent 50% of operating expenses [although this can be much higher in the home health, hospice and personal care sector].

“Consequently, buyers are scrutinizing labor market supply and demand. Targets with wage pressures are prime candidates for earn-out-based deal structures which allow buyers to mitigate the risk of rising wages.”

Threatening to impact the healthcare M&A landscape during the remainder of 2023 is the prospect of additional interest-rate hikes by the Federal Reserve. The economy was spared what would have been an 11th consecutive rate increase when Fed policymakers voted to keep the benchmark borrowing rate steady at their June meeting, according to Bankrate.

But investors can’t count on the pause lasting for the remainder of the year. After voting to leave borrowing costs in a target range of 5% to 5.25%, the Federal Open Market Committee announced plans for two more rate hikes in 2023.

“Interest rates have hindered consolidation activity compared to the last several years,” said AJ Shekar, director at Provident Healthcare Partners. “With low interest rates in mid-2020 through early 2022, private equity firms were able to be more aggressive on valuation, deal structure and pace of acquisitions. As cost of capital has increased, investors have been conservative around the types of platforms they are pursuing to ensure that third-party debt can be adequately serviced without adverse impact to their portfolio companies.

“Since healthcare services are largely non-discretionary in nature, investors view the segment as recession resilient in the face of economic downturn. Macroeconomic trends driving demand for healthcare services such as an aging population, increasing incidence of chronic conditions/diseases, innovation in therapeutic technologies and procedures and consumer-centric/value-based healthcare are persisting.”

Shekar said there is still a significant amount of capital sitting on the sidelines to be deployed into healthcare services, which has led to continued interest for high-caliber companies seeking private equity investment.

“Our expectation is that deal volume for the largest transactions will be slow throughout 2023, barring a significant decrease in interest rates,” Shekar said. “However, bolt-on acquisition and small platform opportunities will continue to persist throughout this period.”

If the Fed boosts borrowing costs twice between now and the end of the year, rates will reach a level not seen since 2001. Only seven of 18 officials in March saw rates rising higher than they are now this year. That number rose to 16 officials in June.

“The interest coverage ratio of a company will be negatively affected by rising interest rates,” Torres said. “The interest coverage ratio is one of the main indicators of a company’s performance in relation to converting its outstanding debt into equity. It is used to evaluate the riskiness of investing in a company in relation to its current debt. As a result of an increase in interest rates, new methods for value creation other than being predominantly debt focused need to be considered. Operational improvements, multiple expansions, deal structuring and better pricing strategies all present ways in which investors can evaluate firms to acquire.

“As we continue through 2023, we can expect the relative slowdown in private equity dealmaking activity to continue. We expect governments to continue hiking interest rates to higher levels as the fight against inflation continues. However, the interest rate is not the only factor that affects private equity and thus, when the market stabilizes, we can expect Private equity activity to start growing again. As valuations are currently at their lowest, we will probably see many companies struggling to maintain profits in upcoming months while private equity funds may seize this moment to acquire companies at a discounted price.”

Torres said he expects institutional money to continue flowing into private equity, prolonging the decade-long trend. “However, as the fear of a prolonged recession increases, and we come to the end of the so-called ‘easy money’ period, we can expect private equity firms to undergo dramatic changes in their operations,” Torres said.

While boosting borrowing costs is meant to bring down the rate of inflation, markets fear that defeating inflation will lead to a recession. “The interest-rate environment has caused a slowdown in private equity platform exits and new platform formations,” said Eric Yetter, managing director and healthcare team leader at FOCUS Investment Banking LLC. “We are still seeing robust add-on activity among existing platforms. I expect to see that trend continue through 2023.

“Activity in 2024 will depend on what happens with interest rates and whether there is a significant pullback in the overall economy.”

Andre Ulloa, partner and executive advisor at M&A Healthcare Advisors, is optimistic about the future while recognizing the current challenges in the market. “The cost of capital has reduced valuations for private equity firms,” Ulloa said. “This has leveled the playing field for strategic buyers. Sellers interested in recapitalization of their business are reducing their appetite for debt as interest rates have a material impact on cash flow.

“However, private equity still has a tremendous amount of investor-committed capital, or dry powder, that it needs to deploy. Although 2023 has gotten off to a slow start, we expect it to end strong. Probably on par with 2022, with an expectation of even more healthcare investments in 2024.”

Along with the downward trend in deal volume is the number of megadeals. Based on reported prices in the LevinPro HC database, there were three deals during the first half of 2023 with a sale price of $1 billion or more. There were nine such transactions throughout all of 2022. 

The leader in private equity prices paid this year in health care came on May 10 when Syneos Health, Inc., a multinational contract research organization based in Morrisville, North Carolina, was acquired for $7.1 billion, including outstanding debt.

Syneos Health was acquired by a consortium of private investment firm affiliates including Elliott Investment Management, Patient Square Capital and Veritas Capital for $43 per share in cash. Completion of the transaction is expected in the second half of 2023. The purchase price represented a 24% premium to Syneos Health’s unaffected closing stock price on February 13. In 2022, Syneos Health reported total revenue of $5.4 billion.

Private equity’s acquisition activity in health care continues its unmatched focus on the Physician Medical Groups (PMG) sector. The most recent annual comparisons show that of the 966 private equity deals in 2022, PMGs were the target in 433 of the transactions accounting for 45% of the total. Previous yearly numbers included: in 2021, 328 of 866 for 38%; and in 2020, 135 of 429 for 31%.

“We are seeing a shift to structure deals so that selling doctors are more highly compensated after the transaction closes,” Yetter said. “The private equity group is buying less profitability and

leaving more of it with the physicians. The idea is to create more incentive for continued


Data dealing with the first six months of recent years included: in 2023, 177 of 406 for 44%; in 2022, 203 of 516 for 39%; in 2021, 151 of 402 for 38%; and in 2020, 50 of 173 for 29%.

“Private equity’s focus on specialty firms is shifting, with a greater focus in areas including eyecare, dental care and physical therapy,” Ulloa said. “Anesthesiology and dermatology are no longer top investment targets.”

Private equity’s big PMG deal of 2023 came on April 20 when OneOncology Inc. was acquired by TPG Capital and AmerisourceBergen for $2.1 billion from General Atlantic. OneOncology is a national network of independent community oncologists assisting partner practices to expand their cancer care services. Its network includes 700 physicians practicing at more than 181 sites serving approximately 280,000 patients annually. TPG, which will acquire a majority interest in OneOncology, is a global alternative asset management firm founded in San Francisco in 1992 with $135 billion in assets under management and investment and operational teams in 12 offices globally. AmerisourceBergen sources and distributes pharmaceutical products to healthcare providers, pharmaceutical and biotech manufacturers and specialty drug patients.

AmerisourceBergen purchased its minority interest for approximately $685 million in cash, which represented about 35% ownership in the joint venture. OneOncology’s affiliated practices, physicians and management team will retain a minority interest in the company.

“Private equity’s involvement in health care has provided a needed solution to the reduction in reimbursement [payments by insurance carriers, including the federal government via Medicare] for healthcare services,” said Collin Hart, managing director at ERE Healthcare Real Estate Advisors. “With continued pressure on costs, the healthcare system has become increasingly bureaucratic, making operations more difficult for independent practices and providers. This has required a larger allocation of resources [staff and time] on pre-authorizations, coding, billing and collections, forcing healthcare organizations to shift time away from patients in order to focus on remaining solvent. By leveraging deeper resources, including capital, expertise and economies of scale, private equity has created a release valve for this pressure, enabling providers to focus on delivering care to patients.”

Yetter combined a warning with some optimism regarding the future of private equity M&A activity in health care.

“A significant recession will cause M&A volumes to decline while investors recalibrate their investment and exit strategies,” Yetter said. “However, healthcare services are relatively insulated. Private equity groups have raised funds and need to deploy their capital somehow regardless of economic conditions. Health care is generally viewed as a safe and favored place to invest in more difficult economic times.”

Glenn Kalinoski is a writer for Levin Associates. Levin Associates provides comprehensive coverage of the deals, companies, and trends shaping the healthcare industry. Clients access proprietary M&A transaction data and daily news/analysis through the LevinPro platform. Schedule a demo today to see what LevinPro can do for your team.