Dive Brief:
Private equity dealmaking in healthcare services fell again in the third quarter, according to a PitchBook report.
The market research firm estimated 148 PE deals were announced or closed in the third quarter, down from 185 last quarter. Total deal count in 2024 could decline 15% compared to last year.
But Pitchbook said the market is still poised for a turnaround. “Last quarter, we called a turning point in PE healthcare services investing. We are standing by that call, although we are still waiting for the resulting deal announcements as processes drag on and sponsors try to time the market,” Rebecca Springer, lead analyst for healthcare at PitchBook, wrote in the report.
Dive Insight:
PE dealmaking in healthcare services has declined since 2021 highs, according to PitchBook. Firms began to pull back their investments last year as they faced high interest rates and labor costs, as well as heightened regulatory scrutiny.
Last quarter, the research firm noted acquisition pipelines are filling up, and sellers’ price expectations were beginning to fall, signaling a gradual increase in dealmaking on the horizon.
However, the third quarter didn’t bring the expected investment momentum in healthcare services. Buyers and sellers have become more active in the second half of year, but they’ve focused on healthcare IT and pharma services instead of direct care delivery. Timelines for dealmaking are also extended, PitchBook said.
PE firms are currently showing the most interest in medspa or outpatient mental healthcare deals, according to the market research firm. Physician practice management companies are still unpopular with PE investors, as they face challenges with physician compensation and retention and lackluster exit prospects.
Firms are expected to hold these assets for longer, and may use mergers and acquisitions to grow these investments over time.
Another trend challenging some PE-backed healthcare companies is contraction in the Medicare Advantage market. The privatized Medicare program has grown to cover more than half of eligible beneficiaries, but increased healthcare utilization, lower payment rates and declining quality bonuses are pressuring insurer finances — pushing some to trim their plan footprints.
That leaves some value-based primary care chains struggling, PitchBook said. One provider, Cano Health, emerged from bankruptcy restructuring this summer with a significantly reduced clinic count. Another player in the space, Clinical Care Medical Centers, declared bankruptcy last month.
