Healthcare M&A update: H1 2024

H1 2024 healthcare providers and services public market update

Healthcare (HC) public market overview

Healthcare providers and healthcare services companies had a sluggish start to 2024 as many of the headwinds and questions that the industry faced at the end of 2023 carried forward into H1 2024. Companies have implemented initiatives and strategies to address these headwinds.

Inflation has impacted nearly every sector of the economy and healthcare has been no exception. Healthcare providers and healthcare services companies continue to navigate difficult labor markets which see compensation negotiating power skewed toward physicians and other healthcare professionals. As the need for labor is only expected to increase in the years ahead, operators will need to be creative in finding ways to leverage outsourcing, managed services partnerships and automation to ensure they are properly staffed.

The increased adoption of technology within the healthcare ecosystem was highlighted in the H2 2023 report and remains a key area of strategic growth into 2024. Generative artificial intelligence (AI) has the possibility to drive productivity gains, reduce administrative costs and improve patient outcomes through more efficient data analysis and organization. While this presents a significant opportunity for operators, the benefits likely will not come overnight as the sector is characterized by heavy regulation. AI’s use of and exposure to patient data remains a key area of concern for both operators and regulators.

Consolidation remains a key theme within the industry as companies look to reshape their business and pursue acquisitions that foster strategic alignment. Changing market dynamics such as the rise in alternative care sites, increased use cases for AI and the overall increased usage of technology in the space present opportunities for well-capitalized buyers to acquire strong operators; however, regulatory approval continues to be a hurdle for closing larger deals.

In H1 2024, the BT Capital HC Index underperformed the broader market as the performance of home health and hospice, managed healthcare and non-acute care names dragged down the index’s performance. The BT Capital HC Index outperformed the iShares US Healthcare Providers Index (IHF), driven by exceptionally strong gains from Encompass Health Care Corporation (EHC), The Pennant Group, Inc. (PNTG), Select Medical Holdings Corporation (SEM), Sonida Senior Living, Inc. (SNDA) and Tenet Healthcare Corporation (THC).

H1 2024 healthcare providers and services spotlight

2024 BT Capital HC index performance and select multiples

Valuations showed signs of stabilization in H1 2024, though still well below 2021 peaks, with non-acute care showing the strongest multiples of all subsectors.

BT Capital HC Index

Median TTM revenue growth rates ( % )

Historical healthcare providers and services trading multiples

H1 2024 healthcare providers and services M&A insights

HC providers and services M&A insights (U.S.)

Healthcare providers and services M&A activity began to stabilize in the first half of 2024 despite many of the lingering headwinds that carried over from 2023, including interest rates, increased regulatory scrutiny and economic and geopolitical uncertainty. Deal flow was primarily driven by consolidation and strategic alignment efforts as operators continue to expand into alternative care sites, seek new technological capabilities and look to boost economies of scale.

One noteworthy theme from H1 2024 was the decline in the number of larger deals. H1 2023 included six deals with transactions over $1B compared to just two $1B+ transactions in H1 2024. Despite seeing fewer large transactions in H1 2024, healthcare providers and healthcare services deal volumes did stabilize. This evidences a broader trend – that buyers and sellers are beginning to move closer on valuation expectations, but these valuations are generally lower than they were in recent peak periods. Additionally, Federal Trade Commission (FTC) and state-level oversight remain challenges for closing larger deals.

Along with regulatory oversight, another key hurdle for getting deals across the finish line is buyer due diligence. Consistent with overall M&A trends, Baker Tilly Capital is seeing due diligence periods move slower/last longer. Buyers and sellers alike will likely need to adjust deal timeline expectations moving forward as inflationary, interest rate and economic and geopolitical uncertainties remain at play.

As buyers continue to adapt to the higher interest rate lending environment, the prospects for dealmaking show signs of promise as operators look to innovate through technology, gain market share by acquiring smaller players with strong operations, expand their reach through alternative care sites and add talented staff.

HC providers and services M&A activity (U.S.)

Per Capital IQ data, U.S. healthcare providers and healthcare services M&A activity slowed in H1 2024, with 289 deals closing for a combined value of $7.8B. Deal count in Q1 2024 (153 deals) increased when compared to Q4 2023 (138 deals) but was down compared to Q1 2023 (172 deals). Deal count in Q2 2024 (136 deals) was lower than both Q1 2024 and Q2 2023 (158 deals). M&A deal value in H1 2024 was $7.8B, representing 230.5% increase from H2 2023. Deal value in Q1 2024 was $5.8B compared to $1.3B in Q4 2023 and $28.4B in Q1 2023. Deal value in Q2 2024 was $2.0B compared to $5.8B in Q1 2024 and $13.6B in Q2 2023.

HC providers and services M&A activity – deal breakdown (segment)

Health care services companies were the most sought after by buyers in H1 2024, accounting for 66% of closed deals in the period while health care facilities accounted for 31% and managed health care deals rounded out the total with 3% of deal volume.

HC providers and services M&A activity – deal breakdown (geography)

Texas proved to be the most popular state for buyers to pursue deals, with 24 deals closed in H1 2024. California, Florida, Pennsylvania and Michigan made up the rest of the top five.

H1 2024 Select HC providers and services M&A spotlight

Expand the section(s) below to view the next tables.

To view more on this topic or learn how Baker Tilly specialists can help, contact our team.

Baker Tilly Capital, LLC disclosure

Baker Tilly Capital, LLC privacy policy

Baker Tilly Capital, LLC social media disclaimer