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Healthcare and life sciences M&A: Poised for a rebound?

After a wild few years for HCLS, there’s reason for optimism and some new opportunities—if you know where to look.

There’s no playbook for scaling your business after a once-in-a-century pandemic, and that’s especially true of the healthcare and life sciences (HCLS) industries.

Rapid reinvention, breakthrough new drugs and therapies, and spiking demand for first-of-their-kind products and services powered a surge—which then hit headwinds in the form of supply chain challenges, rising costs, and gloomy economic omens. Deals were down last year between 15 to 40 percent across the industries’ eight key subsectors, and multiples seemed to fall as quickly as labor costs rose.

And yet, dealmakers remain generally optimistic about the year ahead, as we report in our 2023 Healthcare and Life Sciences Investment Outlook. In fact, most are predicting a rebound.

Respondents to our investor survey are also bullish about M&A activity in the coming year. Sixty percent expect more deals in 2023 than in 2022, and just 8 percent predict that deal volume will fall.

Findings from the KPMG 2023 Healthcare and Life Sciences Investment Outlook.

What’s driving the optimism? M&A activity in HCLS is often powered by innovation, which itself is driven by evolving consumer expectations and rising demand. And all of those leading business indicators are accelerating.

Our comprehensive 54-page report is based on our annual survey of corporate and private equity dealmakers, extensive research into market environments, and input from our own KPMG specialists working closely with clients in the HCLS sectors.

Here’s a sneak peek at some of the report’s key insights—and potential deal activity and market drivers that may shape the 2023 HCLS investment landscape.

Healthcare: Consolidation ahead

Healthcare M&A slowed by 40 percent in 2022, thanks to a perfect storm of headwinds all blowing in the wrong direction. Consider:

  • Inflation hit a 40-year high, straining the budgets of consumers, suppliers, and providers—and giving acquirers reason to pause amid rising interest rates.
  • Labor costs rose faster than inflation, in part because of shortages of nurses and other skilled workers.
  • Much of the federal and state pandemic-related funding for providers ended, and costs are outpacing the relatively modest increases in reimbursements.
  • Supply chains recovering from the pandemic were battered anew by Russia’s invasion of Ukraine.

But healthcare does tend to be resilient during economic downturns, and M&A can help companies by securing resources to maintain operations, scaling up to find efficiencies, and gaining access to new markets, products, and talent.

Here’s a glance at what the experts anticipate for 2023 across the four healthcare subsectors:

Hospitals and health systems:

The “scale equals success” maxim points to consolidation in 2023. Financial pressures—and especially to find and retain talent—will push health systems to find new growth opportunities, even in competitive markets and within service lines that have not typically driven positive margins. Look for some nontraditional partnerships as well, as health systems bolster offerings in areas like nonacute ambulatory and virtual care.

Physician practices:

Here also we expect strong deal volume despite ongoing challenges on staffing, capital costs, and reimbursements. Even so, physician practices will continue to appeal to investors as care shifts to outpatient settings. Scale will become more important for managing paperwork and negotiating with payers, and the long-term trend toward value­based care will drive permanent changes in business models.

Home health and hospice:

We anticipate more volatility in this subsector, even as deal volume fell 40 percent last year, despite a couple of megadeals. But home healthcare is increasingly appealing to a steadily aging—and growing—consumer base, and payers like the improved costs of care delivery outside hospitals. Meantime, both providers and hospitals are looking to expand their continuum of care by linking up with home health and hospice partners.

Healthcare IT:

After two years of growth, IT deal volume fell 33 percent last year. But many of our survey respondents believe IT demand will bounce back, driven by an increasing emphasis on value-based payments, revenue cycle management, and precision data and analytics. As just one example: Any IT enhancement that can free staff to focus on higher­value work is hugely appealing amid a staffing crunch that is starting to feel permanent.

Life sciences: Innovation to the rescue?

Last year brought more uncertainty than promise for the life sciences sector. During the pandemic, funding overflowed, which fueled rapid scientific advances and surges in dealmaking.

As the pandemic eased, however, the flood of money receded and macroeconomic challenges increased. Result: M&A deals across the industry fell 19 percent. Still, this is an innovation-first industry—and that alone has calmed headwinds before.

Here’s what experts expect across the key life sciences subsectors in 2023:


Biopharma: Deals fell 26 percent year-over-year in 2022, even as product acquisitions, licensing deals, and R&D partnerships flourished amid a continuing focus on early-stage development of cell and gene therapies and biologic drugs. These innovative therapies will continue to be a major motivation for M&A this year, with about two-thirds of survey respondents finding both early- and late-stage assets appealing.


Diagnostics: Fast. Accurate. Convenient. This is what consumers now expect from diagnostic testing, thanks to the rapid innovation driven by the pandemic. That isn’t going to change anytime soon—probably ever—which means an M&A rebound may be coming in 2023, especially if the gap between buyers’ and sellers’ expectations narrows.


Medical devices: The elective surgery rebound that device makers have been hoping for may be here. Though deal volume dropped 15 percent in this subsector last year, companies serving plastic surgery, endoscopy, orthopedics, and cardiology are now experiencing rising demand. And innovations in interventional cardiology, robotic surgery, and other areas are also on the horizon. Think about where HR has a presence in your organization — do you currently provide integrated and connected support across the business?


Biopharma services: These companies are well positioned: Major pharmaceutical companies and emerging biotechnology firms are outsourcing much of the drug-development process to them. In past recessions, biopharma services outperformed the overall market, and dealmakers and corporate leaders expect the same resilience from the group in 2023.

Curves ahead

Buckle up, because 2023 is shaping up to be an interesting ride, based on a wide range of influential factors. Capital costs are higher, and volatility will persist, but we expect deal activity to bounce back and settle at pre-pandemic levels.

Most of the action is likely to be with middle-market companies at $200 million to $1 billion in enterprise value. If the stock market strengthens, some companies may seek to launch IPOs quickly while valuations look promising. If market continue to gyrate, many will see M&A as a more viable alternative. Large deals could emerge from this uncertain environment.

Explore more insights

Meet our team

Image of Ash Shehata
Ash Shehata
Principal, National Healthcare Sector Leader, KPMG US

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