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Health services deal volumes through November 15, 2023, declined by 13% from 2022 levels, as the sector continued to be impacted by headwinds driving a slowdown in the broader deals market. Contributing factors include higher-for-longer interest rates, valuation gaps, increased federal and state regulatory concerns and general macroeconomic risks. However, the 2021 and 2022 comparison periods were record years for health services deal volumes. Trailing 12-month volumes as of November 15, 2023, remain at nearly twice the average annual levels seen from 2018 through 2020.
While deal values declined at a more meaningful rate in 2023, those figures only reflect disclosed deal values and do not include many private market deals. The decline in disclosed deal values does however illustrate the impact that the previously mentioned headwinds are having on larger transformational deals.
Industry-wide enterprise value (EV) to EBITDA multiples have steadily declined since the end of 2021. As of November 15, 2023, the average multiple across health services subsectors was 13.0x, versus 13.8x and 15.9x as of December 31, 2022, and December 31, 2021, respectively. That’s a positive for dealmakers looking to find value during a period with a higher cost of capital.
Our outlook for 2024 health services deals is cautiously optimistic. While general apprehension from all parties involved in the deal cycle continues, corporate and private equity (PE) players alike continue to hold large levels of capital that need to be deployed. Corporate entities recognize the importance of business reinvention and portfolio transformation to achieve growth and profit expectations, with M&A seen as a leading way to drive these changes. PE has been inwardly focusing on value creation at its portfolio companies. But the record levels of capital on hand, combined with current investments reaching the end of their target hold period and the recent emergence of non-traditional deal structures should all provide momentum for additional activity in 2024.
“The declines in sector transaction volumes are consistent with the broader macroenvironment but remain generally in line with 2021 levels. Non-traditional cross-sector partnerships continue to be a strategic focus of many health systems and strategic assessments persist in driving more divestitures and realignment in the sector. While financing challenges persist, the sector’s resilience continues to make it ripe for increased transaction volumes in 2024.”
LevinPro HC: The merger and acquisition data contained in various charts and tables in this report have been included only with the permission of the publisher, Irving Levin Associates LLC. All rights reserved.
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