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Health services: Deals 2022 outlook

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What's driving deals in 2022

PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for 2022.

Superlative deal volumes

Deal volumes rose by an extraordinary 56% in the 12 months through November 15 versus 2020, with particularly high growth in physician medical groups, managed care and rehabilitation subsectors.

Deals appetite has persisted despite high multiples — the sector-wide mean enterprise value to EBITDA multiple for the period reached 15.2x.

In the same period, the sector has seen nine megadeals valued at $5 billion or more, plus traditional IPOs and IPOs backed by special purpose acquisition companies (SPACs).

Deals are being driven by forces including capital availability, regulatory pressures, searches for value, resilience imperatives and evolving value chain power dynamics.


Health services deals outlook

While long-term care was the most popular subsector, it was the number of deals targeting physician medical groups that was particularly notable: over 400 in the 12 months through November 15. This compares to about 200 to 250 deals per year during 2017 to 2019. Practices have experienced challenging economics and may face 2022 Centers for Medicare and Medicaid Services (CMS) payment cuts as well, which could lead to more consolidation and private equity roll-ups.

Private equity and corporate capital is plentiful and driving demand for assets across subsectors. High industry-wide EV/EBITDA multiples haven’t stymied deal volume. Multiples are about where they were at the close of 2020, bolstered by increases in managed care (up 2.9 to 16.6x) and skilled nursing facilities (SNF), assisted living facilities (ALF) and long-term acute care hospitals (LTACH) (up 2.1 to 14.0x). That said, multiples have dropped in four of the seven subsectors whose multiples we track. Home health and hospice was down 5.0, but at 21.0x is still by far the highest of the subsectors. Acute care, ambulatory care-rehab-dental, and labs-imaging-pharmacy are all down between about 0.5 to 1.0x.

Given recent activity, ongoing interest in the public markets is expected. For years, there were no pure health services IPOs, but 2020 saw two, and 2021 has seen eight. This count excludes SPAC-backed IPOs, of which there have been at least a dozen in the 12 months through November 15 — two were classified as megadeals.

The level of megadeal activity indicates that deals will likely be plentiful going forward. While 2019 and 2020 saw just one megadeal each, the 12 months ending November 15 had seven non-SPAC megadeals:

  • Four deals targeting the contract research or manufacturing space (all classified as other services, boosting that subsector’s total deal value)
  • Humana’s acquisition of the remaining 60% stake it did not own in Kindred at Home
  • Two deals related to Walgreens Boots Alliance: its divestiture of its Alliance Healthcare business and its increase of its stake in primary care-focused VillageMD
health services value volume deals 2022 outlook
health services sub sector deals 2022 outlook

“The pandemic’s not over but health services and private equity firms are finding plenty of opportunities to invest and grow. That said, resilience and unlocking value are front and center as competitive and regulatory pressures loom.”

— Nick Donkar, US Health Services Deals Leader

Key deal drivers

Deal-making could take new forms and require more diligence

Health services deals could face more scrutiny and longer review times from regulatory agencies (both federal and state), given review backlogs and a July 2021 executive order that spotlighted antitrust enforcement of hospital consolidation.

These developments — along with recent opposition from employees and communities against some mergers that led health systems to scrap deals — could reshape merger plans. Some evidence of this effect: Only the hospitals subsector saw a decline in deal volume in the last twelve months through November 15 compared with 2020. However, since health systems are still looking to achieve population health and financial goals, they may consider alternative alliance models. Venture funds also remain of interest.

Dealmakers could deepen their focus on value creation

With deals potentially under greater scrutiny and multiples still high, demonstrating deal value will be of the essence.

Some areas of interest include:

  • Government and Affordable Care Act (ACA) health plans, anticipating continued Biden administration support for Medicaid and Medicare Advantage programs and broader coverage expansion
  • Home care assets, given growing emphasis on care beyond inpatient settings and CMS’ increased payments for home health services in 2022
  • Behavioral care, given continued need and access issues (multiple $1 billion-plus deals this year illustrate the interest in such assets)

Thoughtfully integrating these assets and their associated data will also be key, especially as interest in mining and monetizing large datasets grows alongside the risk of security and privacy breaches. 

Deals could help companies diversify and advance new operating models

For hospitals and other service providers, labor shortages mean rethinking workforce evaluation in deal diligence. Ongoing supply-chain issues mean some systems have invested in manufacturers to ensure resource continuity as well as income flows.

For payers, the pandemic complicates visibility into future income. Depending on Congress’ final budget reconciliation package, and whether the national public health emergency is renewed past January 2022, coverage and reimbursement levels could change, altering the market segments that dealmakers find attractive.

Companies’ abilities to manage through these challenges could impact deal valuations.

Deals could help reposition companies in the value chain

Multiple factors could shape competitive dynamics. For example, CMS price transparency enforcement and surprise billing regulations could alter payer-provider relationships and local competition, Blue Cross Blue Shield Association insurers could diversify following a 2021 rule change and regional health system consolidation continues.

New entrants continue to expand in healthcare, especially in digitally-enabled ways, including Best Buy, Amazon Care, and others. While payers continue to integrate vertically, health systems expand to capture more of the care continuum.

Digital health consolidation could impact patient engagement dynamics and choices about who payers and providers partner with or ultimately acquire.

About the data

LevinPro HC and LevinPro LTC: 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.

S&P Capital IQ: Information provided by or through third parties is provided “as is,” without any representations or warranties by PwC or such third party. PwC and such third parties disclaim any contractual or other duty, responsibility or liability to client and any person or entity that receives such information.

Contact us

Nick Donkar

Nick Donkar

Partner, Health Services Deals Leader, PwC US

Scot Schiefelbein

Scot Schiefelbein

PwC Deals Director, PwC US

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