Health services: Deals 2022 midyear outlook

Deal volume remains durable

Deals in most sectors have been down during the first few months of 2022 compared with the high-powered deal environment seen in the first months of 2021. Yet, areas of health services are showing strength, even as uncertainty persists around inflation, supply chain issues and COVID.

Health services deal volume was down 9% from the fourth quarter of 2021 to the first quarter of 2022, but volume remains strong when comparing the last 12 months ending May 15 to the prior year period. Deal volume across all health service subsectors increased 5% in the year ending May 15, as compared to the previous twelve months. Yet, the value of those deals was down 17% to about $176 billion for the period. The increased deal volume is driven by roll-up transactions, an effort by the industry to consolidate still fragmented subsectors of the healthcare ecosystem. These transactions are meant to create health systems that can deliver higher quality, patient-centric care anchored in digital capabilities. 

Health services deals outlook

Overall health services deal volumes declined from their 2021 peak but are still trending above the longer-term average and are expected to rebound in the coming quarters. Despite certain macroeconomic headwinds, dry powder from private equity and corporate cash still remains at unprecedented levels and will continue to drive competition for assets.

Long-term care continues to be one of the subsectors driving transactions in 2022, with 498 deals in the year ending May 15 versus 446 during the 12 months ending May 15, 2021. Deal value increased by 2% to $19.6 billion. Long-term care continues to be durable, despite some of the staffing shortages and vaccine mandate issues garnering media attention during the pandemic. The subsector is driven by solid fundamentals as the population continues to age, but has faced challenges at skilled nursing facilities as COVID continues to impact occupancy levels.

Physician medical groups also continue to be of particular interest — dealmaking in the space nearly doubled in the first quarter of 2021 and has continued to stay at elevated levels since. There were 482 physician medical group deals through May 15, with a total value of $5.7 billion. Private equity and health systems continue to compete for these groups. PE firms are looking to grow their regional and national platforms, while health systems vie for market presence.

The pandemic shone a spotlight on the value of home health, driving increased interest in alternative care models that are more accessible to patients. There were 142 home health and hospice deals in the 12 months ending May 15, increasing 19% in value from 2021. This was driven by UnitedHealthcare’s acquisition of Louisiana-based home health group LHC Group, for $170 per share, or about $5.4 billion in cash, plus debt.

• Seven megadeals were announced over the twelve months ending May 15, with only two occurring in 2022 so far. While this was down from the beginning of 2021, it still outpaced 2020 and 2019.
• Beyond the LHC acquisition, the other megadeal was in the “Other services” category and is the $18 billion merger between two healthcare real estate investment trusts (REITs), combining two of the largest holders of medical office buildings. According to JAMA Health Forum, REITs own 8% of healthcare properties in the US.