Is deal making ready to rebound? Q2’23 M&A trends in healthcare

Several factors combined to keep second-quarter deal making in healthcare in its recent rut. Rising interest rates, a possible economic downturn, political divisions in advance of a presidential election, and uncertainty about the valuations of potential acquisitions all contributed. Yet as valuations continue to contract and companies look to divest non-core assets, interest from strategic and financial buyers may begin to pick up, particularly as we move into the first half of 2024.

In this environment, healthcare deal makers need to proceed with caution. The following three considerations could be key.

Beware of troubled assets that could depress the performance of the acquirer at a time when the cost of capital remains high and labor challenges and other operational headwinds may suppress profitability.

Value creation by potential acquisition targets could be crucial. Examine if a company has undergone performance improvement and whether it would have sufficient liquidity to continue without a deal. What is the likelihood that a transaction will create cost, revenue, and other synergies?

Carve-out divestitures, which provide welcome capital for corporate sellers, could emerge as market opportunities in late 2023 and the first half of 2024 and might begin to draw interest from financial buyers.

In this paper, we present data on recent deal activity by sector and type as well as the outlook from KPMG economists and detailed insights from KPMG advisors who specialize in healthcare. We also offer a deep dive into the quickening pace of the shift of clinical services and procedures to outside hospital walls, based on a comprehensive KPMG analysis of claims data.