What 2024 holds for healthcare investment

Jordan Cohen, (left) and Robert Slavkin are partners in Akerman's Healthcare Practice Group.

 

Photo: Courtesy of Akerman

Mergers and acquisitions are expected to rebound in 2024 after M&A activity fell to its lowest level in 10 years globally in 2023, according to Reuters.

Dealmaking last year was weighed down by high interest rates, economic uncertainty and a regulatory scrutiny, with all but the last factor slowly abating for renewed confidence.

WHY THIS MATTERS

Robert Slavkin, chair of the Healthcare Practice for law firm Akerman, said he started to see deals picking up in the second half of 2023. The firm's clients are hospitals and insurers.

"The second half of the calendar year there was a marked increase in the number of deals," Slavkin said. "The first six-to-eight months of the year it was slow. In September it began to pick up."

There's more confidence in the economy, Slavkin said. And the predictions of a recession didn't happen. This caused a thaw in concerns.

The deals have been more numerous among the more established, non-private equity organizations in facility-to-facility types of transactions, Slavkin said. 

There's robust bargaining in the insurance industry, such as the merger recently called off by Cigna and Humana, and providers want bargaining leverage as well, he said.

Physician groups and surgery centers continue to attract buyer interest, according to Jordan Cohen, partner in Akerman's Healthcare Practice Group and chair of the Digital Health Practice Group.

"I'm seeing a lot of practice acquisitions," Cohen said.
 
Competition also continues to acquire urgent and primary care centers, shown by Amazon's $3.9 billion deal to buy One Medical. The primary care provider recently announced three new partnerships with Hackensack Meridian Health, CommonSpirit Health's Virginia Mason Franciscan Health and the Health Transformation Alliance, to use One Medical's primary care services.

Both Slavkin and Cohen are expecting to see more M&A work in the heartland, where smaller hospitals can combine in a philosophy of safety in numbers. 

Cohen is seeing more investment in life sciences and drug development.

A new pwc report said large-cap pharma companies are expected to continue pursuing midsize biotech companies to fill pipeline gaps left by lifting patents. Investor interest in GLP-1 drugs that are used for diabetes and have become an in-demand product for weight loss plus a focus on precision medicine are likely to fuel M&A activity in 2024, the report said.

AI will also likely spur drug development and other deals, Cohen said, as investors wait to see just "what's coming out of black box."
 
"The elephant in the room is interest rates in 2024," Cohen said. "I've seen potential acquisition targets hesitant with such a lower valuation. Folks aren't willing to pay crazy growth rates."

The Feds have signaled a reduction in interest rates in 2024. In mid-December the Federal Reserve said it expected to cut interest rates three times this year, according to The Wall Street Journal.

Another wild card is how a change in the administration could affect deals.

Regulation and FTC enforcement has been more aggressive during the Biden administration. Some investors may be waiting until the November presidential election, with the thinking that it would be easier to push through deals under another Trump administration, according to Cohen.

THE LARGER TREND

High interest rates, increased antitrust regulatory review and elevated valuations contributed to a decrease in dealmaking in 2023. 

The value of deals declined as a greater portion of them were driven by smaller acquisitions and add-on transactions, as opposed to megadeals, according to the pwc report.
 
 

Email the writer: SMorse@himss.org