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KPMG 2025 Healthcare & Life Sciences Investment Outlook

Our annual in-depth examination of the healthcare and life sciences deal market explores 2024 and the year ahead.

This in-depth examination of the healthcare and life sciences (HCLS) deal market explores how the major developments of 2024 have prepared the way for the year ahead. In this paper, we analyze how eight subsectors fared during another year of industry challenges and global instability, and how deal activity and market drivers could shape the 2025 investment landscape.

The macroeconomic climate improved last year, seemingly setting the stage for a more productive HCLS M&A marketplace. Inflation declined, leading to an anticipation of interest rate cuts by the US Federal Reserve that then began with a large, 50-basis-point reduction in September. Consumers continued to spend, unemployment remained low, and the US avoided the recession that many economists had forecast.

With the hope of better economic conditions as well as reduced headwinds for many subsectors, respondents to our survey said they are looking forward to increased M&A in 2025. Seventy-six percent responded that they expected more deals in the year ahead than in 2024, with 43 percent predicting deal volume would grow by at least 10 percent. Just 5 percent foresaw a decrease in the number of transactions. Yet buyers are likely to face higher industry valuations. Sixty-two percent of respondents predicted an increase in valuations, while 23 percent expected valuations to remain flat. We think this outlook makes sense, with rising motivations to make deals likely spurring competition for a decreasing number of desirable assets.

Here are the highlights of the eight subsectors:

  • Biopharma: The pharmaceutical industry is on the clock to refill pipelines with innovative therapies as a patent cliff for many blockbusters approaches. That search, potentially aided by AI’s increasing role in drug discovery and development, has been complicated by economic headwinds for smaller biotechs, which could find firmer footing if interest rates continue to drop. Advanced therapeutics for precision medicine, particularly in oncology, remain a primary focus, leading to many of the largest recent acquisitions and partnerships. The success of GLP-1s for diabetes and weight loss is also having a broad impact, spurring clinical trials for additional indications and reviving interest in drugs that might be used by broad populations. The profound impact of the Inflation Reduction Act (IRA) on pharma company strategies and direction continues to be assessed, and with the next round of choices for Medicare drug price negotiation due this coming February, the incoming Trump administration’s support for the IRA will face an early test. If uncertainty eases as 2025 progresses, the pace of dealmaking could pick up.
  • Life sciences tools and diagnostics: During 2024, this subsector continued its post-COVID-19 repositioning in the face of slowing growth in China, reduced public and private funding, and new regulatory initiatives. Core lab testing expanded into genetics and other advanced diagnostic categories as leading testing companies made deals to broaden and deepen their capabilities. Advances in AI-based diagnostics and digital pathology have led to the development of a growing range of algorithms and biomarkers for many cancers and other diseases in a postgenomic era that’s potential is only beginning to be tapped. An improvement in macroeconomics conditions could help spur revived M&A in 2025.
  • Medical devices: Dealmaking in this subsector remained sluggish in 2024. Yet there were multiple large transactions as companies looked to shape their portfolios in cardiology and other key therapeutic categories. AI-enabled products and services, especially in radiology, also figured in numerous acquisitions and partnerships. Other trends involved further innovation in diabetes care and medical decision support, and renewed demand for elective procedures by an aging population has been a tailwind. M&A could rebound in 2025 as companies make moves to improve product lines, increase market share in innovative categories, and focus on high-demand, high-margin areas.
  • Biopharma services: Despite some headwinds, broad outsourcing of clinical trials, drug development, manufacturing, and commercialization to biopharma services companies continued in 2024, and transactions by both strategic and financial investors remained above prepandemic levels. Chinese companies subject to a potential ban from US markets have shown an interest in selling assets in the US and Europe. AI tools for clinical trials are an increasing focus, and there were several acquisitions of key eClinical assets. Questions about the priorities of the new Trump administration regarding vaccines and other pharmaceutical products, including GLP-1s, could cloud the outlook, but if improved capital market conditions benefit the biotechs that outsource to this subsector, higher levels of M&A activity seem likely in 2025 and beyond.
  • Hospitals and health systems: Most leading hospitals and health systems were in good positions in 2024 compared to 2023, thanks to reimbursement increases, lower interest rates, and more staffing stability. Larger institutions pursued acquisitions and partnerships, expanded offerings, and invested in efficiencies; financial investors remained mostly on the sidelines, given the industry’s margin challenges and capital requirements. We expect more deals as struggling institutions reach for lifelines, and regulators look more favorably on large acquirers growing scale and share across regions and service lines.
  • Healthcare services: This subsector continued to attract strategic and financial buyers in 2024, but deal volume was low, partly in response to changing reimbursement schedules. We expect plenty of smaller to medium-sized transactions in 2025 in this broad category, which includes physicians’ practices and other nonhospital providers. Financial and strategic investors will continue to seek assets in the space to gain capabilities or expertise, such as in value-based payments; expand networks or services in networks; or merge with other providers to gain scale advantages.
  • Healthcare payers: In the shifting payer marketplace, companies and investors must constantly adjust strategies to drive profitable growth. After acquiring provider and pharmacy assets to influence the total cost of care, for example, many players are now divesting health plans that attract patients but lose money or require capital. Given the complexity of the space, we expect plenty of deals in 2025, mostly as strategic buyers divest lower-performing assets, enter new markets, and acquire new offerings and capabilities.
  • Healthcare IT: Headwinds across healthcare—such as rising costs, shrinking margins, and staffing shortages—are tailwinds in healthcare IT, which can boost efficiencies and help staff accomplish more. We expect a steady flow of deals as strategic and financial buyers alike continue to look for companies harnessing AI and other technologies to improve revenue cycle management, handle process-heavy workflows, streamline data exchange, free caregivers to spend more time with patients, and provide predictive insights.

Our annual healthcare and life sciences investment outlook provides insights at the beginning of the calendar year. Our hope is that the survey responses and analysis provided in this report will help leaders in these industries focus on the future with vision and diligence, leading to informed, strategic moves to strengthen themselves for an environment of rapid innovation and exceptional promise.

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