PitchBook: Healthcare Private Equity Deals see Decline

Private equity (PE) activity in US healthcare services slowed in the final quarter of 2023 in the face of economic challenges – including labour shortages – a report from leading investments analyst firm PitchBook shows. 

The Q4 2023 Healthcare Services Report, shows quarterly deal activity fell, and that healthcare services companies accounted for 20% of leveraged loan defaults in 2023, something it describes as “a sign of stress in the category”. 

PitchBook says the economic forces that shaped the healthcare industry in 2023 were ostensibly labour cost inflation and high interest rates. 

The report says that, although labour shortage pressures eased over the course of the year, operating margins for most healthcare provider organisations are unlikely to return to pre-pandemic levels. 

The pandemic caused a mass workforce exodus from the industry, and the report says “this is unlikely to reverse in the short or medium term, barring a significant change to US immigration policy”.

On a more positive note, the report predicts likely interest rate cuts “should help to spur deal activity in the second half of 2024”.

PitchBook: Oncology & clinical trial deals 'buoyant'

It also details “bright spots” in healthcare services, which include PPMs – physician practice management companies – that operate in areas such as vision, oncology and clinical trials. 

PPM companies recorded more deals than any other healthcare services segment in Q4 2023, with 63 transactions.  Two PPM segments, cardiovascular care and clinical trial sites, saw deals and acquisitions rise in 2023. Skilled care and behavioural health companies also saw strong activity.

In total, in Q4 2023 there were 172 PE deals involving healthcare services, a 20% fall on Q3 2023. In total across 2023, there were an estimated 788 deals, the third-strongest year since 2017.

Report author – PitchBook Healthcare Lead Analyst Rebecca Springer – said: “Last year saw momentum shift fundamentally in the PE healthcare services market. PE sponsors announced or closed 788 deals in 2023. 

“This makes 2023 the third strongest year on record for PE healthcare services investing by deal count. But the figure masks significant changes in the size and structure of deals getting across the finish line.”