Consolidation is rife across the healthcare industry, which is expected to see continued momentum in 2023 as private equity firms and corporate entities look to capitalize on investments during a challenging financial period for many in the sector, according to a December analysis from PwC.
Five things to know:
1. While health services deal volumes have increased this year, the value of those deals declined from the peak set in 2021, according to PwC, which attributes the drop to smaller value roll-up and platform add-on transactions representing a larger portion of activity in 2022.
2. Industry-wide enterprise value to EBITDA multiples have also declined from heightened levels seen at the end of 2021, according to the analysis. As of Nov. 15, the average multiple across health services sub-sectors was 14.4x, down from 15.9x on Dec. 31, 2021 and 14.9x on Dec. 31, 2020.
3. The Home health and hospice sector was one of only two sub-sectors that saw growth in announced deal value from 2021 levels, according to the report. In the 12 months ending Nov. 15, there have been 114 home health and hospice transactions, contributing to a 74 percent spike in deal value from 2021. Two megadeals were key contributors to this jump: CVS Health's $8 billion acquisition of Signify Health and UnitedHealth Group's $5.4 billion acquisition of Lafayette, La.-based home-health firm LHC Group.
4. Overall, during the sme period, seven megadeals were announced, including Healthcare Realty Trust and Healthcare Trust of America's proposed $18 billion merger, VillageMD's $8.9 billion acquisition of physician practice group Summit Health, and Chubb's $5.4 billion acquisition of Cigna's life, accident and supplemental benefits businesses.
5. In 2023, PwC projects more divestitures within the health services sector based on economic, regulatory and overall strategic repositionings. As management teams evaluate growth, strategically aligning an organization's portfolio will be key to shareholder returns. Other key trends that help create value through divestitures include timely decision-making, embracing the process of divestitures and navigating inertial factors like entanglements, according to the report.