Healthcare M&A update: H2 2024

H2 2024 healthcare providers and services public market update

Healthcare (HC) public market overview

After experiencing years of margin pressure following the global COVID-19 pandemic, healthcare providers and services companies saw financial and operating metrics stabilize in 2024. Despite this, healthcare providers and services companies’ stocks underperformed the broader market as investors flocked to sectors with more exposure to artificial intelligence (AI). With recent stabilization providing a platform for growth, along with discounted valuations for healthcare stocks compared to the broader market, 2025 could be an attractive entry point for prospective investors in the space.

Since the COVID-19 pandemic, healthcare providers and services companies have battled lower patient volumes and increased personnel expenses. Throughout 2024, volumes rebounded to pre-COVID levels as patients who deferred surgeries and treatments during the pandemic elected to have procedures performed. Concurrently, providers reined in labor expenses by reducing their dependency on expensive contract labor. While labor shortages still pose a problem, providers seem to have designed and implemented successful recruitment and retention strategies for full-time employees while leveraging technological capabilities to make their workforces more efficient.

While labor expenses cooled in 2024, providers and services companies had to contend with rising expenses elsewhere. Administrative costs associated with payer requirements are one area of increase. Additionally, companies spent more on things like medical supplies, drugs, and purchased services such as laundry and linen, security, and maintenance.

Overall, volume growth as more surgeries and treatments were performed, coupled with significant labor cost savings have resulted in a stronger financial and operating picture for healthcare providers and services companies in 2024. Increasing operating margins, patient volumes, outpatient revenue, and average patient length of stay have led to stronger balance sheets and increasing operating cash flows. This rebound in performance could be an inflection point for the sector and provide a springboard for growth in 2025 and beyond as companies execute on their strategic growth plans.