After decline, private equity investment in healthcare reaches turning point: PitchBook (2024)

Dive Brief:

• Private equity dealmaking in healthcare services fell again in the second quarter, but the market is likely poised for a turnaround, according to a report published this week by PitchBook.
• An estimated 142 deals were announced or closed during the period, down 16.5% from the first quarter, the market research firm found.
• But investment began to accelerate in the second quarter. Bankers have noted their acquisition pipelines are filling up, and sellers’ price expectations are beginning to decrease — signaling that a gradual increase in dealmaking could be coming.

Dive Insight:

PE investment in healthcare services has declined over the past several quartersafter firms poured more money into the space in 2021 and early 2022.

Last year, PitchBook tracked nearly 800 PE deals in the healthcare services sector — down from the more than 1,000 seen in 2021 — as firms pulled back amid high interest rates and heightened labor costs.

PE has also faced increased scrutiny from regulators and lawmakers, who argue the firms raise prices and reduce quality of care.

One study published last year found patients are more likely to experience adverse health events, like infections or falls, at PE-owned hospitals. Other research has linked PE ownership to higher costs for patients and payers.

Negative headlines about PE in healthcare may push large investors away from spending on providers, according to the PitchBook report. That’s impacted the number of deals involving physician practice management companies, which dragged deal count down in the second quarter.

Still, general partners at PE firms are facing increased pressure to deploy funds, the analysis found. Signs that the Federal Reserve would keep interest rates higher for longer meant firms began to consider pushing ahead with deals despite the lack of rate cuts.

The second quarter included a handful of important platform sales and creations too, according to PitchBook. Platform companies are firms bought by PE groups that they plan to grow with more acquisitions.

The acceleration in dealmaking this year will likely focus on pharmaceutical services, healthcare information technology and other non-physician practice management firms, according to the report.

“To be sure, the market is still highly risk-averse, and we are still occasionally hearing of processes that fail at the eleventh hour. Deals that cross the finish line continue to be for high-quality assets in almost all cases,” report authors Rebecca Springer and Collin Anderson wrote. “We are nowhere near a full recovery or a ‘rebound’ for healthcare services, but we feel confident in calling a turning point.”

Recommended Reading

• Private equity-backed providers represent less than 4% of US market: PitchBook By Emily Olsen • July 15, 2024
• Private equity investing in healthcare continues to slow By Rebecca Pifer • May 8, 2024
• Senate ramps up scrutiny of private equity ‘greed’ in healthcare By Susanna Vogel • April 5, 2024