Despite Valuation Concerns, Healthcare and Life Science Investors Bullish on M&A Activity; KPMG Survey

NEW YORK – Anticipating high valuations and intense competition for limited high-value assets, healthcare and life science (HCLS) investors remain the most bullish they have been in the last three years, with nearly 80% of respondents indicating they plan to increase their M&A activity in 2025, particularly in areas such as life science tools and diagnostics and healthcare services according to new findings from the 2025 KPMG Healthcare and Life Sciences Investment Outlook.

“The era of smart optimism that defined deal activity in 2024 – companies needing to expand their capabilities through strategic acquisitions – has evolved to smart diligence in 2025,” says Kristin Pothier, U.S. Life Sciences Sector Leader and Global Healthcare and Life Sciences Deal Advisory Leader at KPMG. “Comprehensive commercial, operational, financial, and tax diligence will be critical for success and will enable seamless integrations that deliver value to patients. These trends are not only shaping the outlook for 2025; they are laying the groundwork for a future where healthcare and life sciences drive global innovation.”

The 2025 KPMG Healthcare and Life Sciences Outlook features insights from a survey of 500 industry executives and examines how deal activity and market drivers could influence the 2025 investment landscape of the HCLS sector.

Key Survey Findings Include:

• 79% of life sciences and 73% of healthcare respondents expect to increase their M&A activity in 2025 compared to 2024, with more than a third of HCLS respondents saying they plan to at least do 10% more deals in 2025 compared to 2024.
• Asked which factors are most likely to impact deal activity in 2025, HCLS respondents indicated high valuations, uncertainty surrounding future performance, and growth availability of targets and competition for a limited number of high-value or innovative targets.
• When it comes to valuation expectations, HCLS and private equity (PE)/venture capital (VC) respondents have different views. 72% of LS respondents and 60% of HC respondents expect valuations to increase, whereas only 31% of PE/VC respondents anticipate an increase in valuations.
• Respondents in PE / VC have invested primarily in life sciences tools and diagnostics, followed by medical devices and healthcare IT.
• AI is expected to be a significant driver of life sciences deals in 2025, particularly for tools and diagnostics.
• Despite an uncertain interest rate environment, more than half of HCLS respondents surpassed their deal activity targets in 2024, as measured by deal volume.

Areas of Capital Deployment Focus for 2025

When it comes to deploying capital in 2025, improving operational efficiency, expanding into new products or services and platform expansion or bolt-on acquisitions are forecasted to be key capital deployment areas for HCLS respondents.

“As we head into 2025, the M&A train is picking up speed,“ said Ash Shehata, U.S. Healthcare Sector Leader at KPMG. “After a year of comparatively low deal activity, the industry is gearing up for a return to M&A. Although headwinds persist, we anticipate an uptick in deals driven by significant investments in generative AI, weight loss drugs and continued growth in the consumer health space.”

Select Subsector Highlights:

• In biopharma, strategic partnerships, creative financing, and early-stage biotechs are expected to drive deals in 2025—despite industry attitude toward de-risking portfolios, because of the much-needed innovation these structures and entities deliver on.
• Nearly 8 in 10 medical device investors expect 10% or more of deals to incorporate artificial intelligence or machine learning as part of the target’s capabilities.
• Asked to rank the most significant challenges that may limit growth and/or investments in healthcare services, nearly half of respondents cited reimbursement pressures.
• Nearly 6 in 10 healthcare IT respondents believe artificial intelligence and machine learning will be the most disruptive technology trend in 2025.
• When asked about expectations for 2025, 59% of hospital and health systems anticipate an increase in deal volume.

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