Health services: Deals 2022 midyear outlook

Playback of this video is not currently available

3:27

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.
health services value volume deals 2022 outlook
health services sub sector deals 2022 outlook

“Labor challenges continue to persist across the sector and are having disproportionate impacts across various geographies and sub-sectors. M&A processes continue to be ultra-competitive and, coupled with rising interest rates and other macroeconomic headwinds, increase the need for post-deal value capture from enhanced capabilities and operating leverage.”

— Nick Donkar, US Health Services Deals Leader

Key deal drivers

Competition for assets and capital efficiency

While the pandemic shaped how healthcare providers operated, we’re seeing a move back to more pre-pandemic norms. Federal stimulus is running out and many programs that served as a backstop are set to expire at the end of the public health emergency. The financial stability of many health systems may now come into question. While capital is still readily available, rising interest rates could expose some companies to greater financial stress.

Taking on initiatives to drive capital efficiency and restructuring to better focus on core competencies is going to be critical for health systems that previously benefited from federal funds. 

Navigating uncertainty

Supply chain shortages — which are impacting everything from medical gloves to contrast for imaging scans — and ongoing labor issues continue to be top-of-mind for healthcare providers as they aim to contain costs. Further aggravating the problem is rising inflation compounded by the war in Ukraine.

These challenges are pushing companies to look for efficiencies that will bring down costs while also helping to alleviate provider burnout. This could push providers to look for innovative deals around technology or alternative care models, including continued focus on behavioral health within the continuum of care as mental health services become more ingrained within payers’ standard covered services. 

Speed to unlocking value for transformational M&A

As more participants from sectors like technology and retail attempt to enter the health services space, the need for traditional health companies to unlock value around purpose, culture and digital capabilities becomes even greater.

Multi-entity partnerships — particularly those with digital health companies — could become more common. This comes at a time when private equity buyers are further disrupting the market, and are expected to continue investing in and trading within subsector specialties like dental and ophthalmology. All of these non-traditional market forces drive further need for reinvention, making it imperative that businesses use more informed decision-making to reach better outcomes. 

Increasing resilience and security

Cyber and data security continues to be of the utmost importance to health services companies, particularly as the industry made the pandemic-driven shift to more technologically supported services, including telemedicine expansion.

According to the Department of Health and Human Services, payers and providers saw a combined 619 data breaches in 2021, up 36% from 2019 pre-pandemic levels. Payers and providers will be best served by being proactive ahead of potential federal regulations in the space by making sure they are in compliance with current HHS regulations, as well as expanding their cybersecurity teams. Cyber diligence plays an important role both pre- and post-deal closing, allowing acquirers to better understand the current state of affairs during a transaction.

Furthermore, increased efforts around cost and transparency will also help to make organizations more resilient and drive initiatives to be more consumer-centric. 

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

Deals Partner, PwC US

Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.

Hide