Healthcare, life sciences leaders expect more mergers in 2025

Most healthcare and life sciences executives are expecting to see more mergers and acquisitions in the coming year, according to a new report by KPMG released Friday.

More mergers and acquisitions are expected in the healthcare and life sciences sectors, says Ash Shehata of KPMG.

More than three-quarters of executives surveyed (76%) said they planned to increase M&A activity in the coming year, compared to 2024. A significant number (43%) said they expected deal-making to rise by at least 10%.

About one in five executives (19%) said they expected to engage in a similar amount of merger activity in the coming year. Only 5% of the respondents said they expected to see fewer deals in 2025.

• Read more: Midwest hospital systems complete $10B mega-merger

Ash Shehata, KPMG’s U.S. sector leader for healthcare, spoke with Chief Healthcare Executive® about the optimistic outlook for dealmaking in the year ahead.

Healthcare leaders and life science companies are expecting to see less regulatory scrutiny when President-elect Donald Trump returns to the White House, Shehata says. Trump has tapped Andrew Ferguson to replace Lina Khan as chairman of the Federal Trade Commission.

“We think deregulation is going to be something that will create a momentum for opportunity, because that'll, I think, open up some areas of innovation, and maybe new technologies in other areas,” Shehata says.

Executives and tech companies are also projecting at least the possibility of reductions in business taxes, which could spur more mergers.

KPMG is anticipating “a potentially business-friendly tax rate environment, which is also going to move the needle pretty quickly, and then it'll likely bring in both private equity and VC money into the industry,” Shehata says.

If costs of capital ease, that could also drive more deals, Shehata says.

Some healthcare organizations are also anxious to clean up their portfolios, and divest divisions or entities that aren’t performing well, he adds.

Overall, Shehata sees growing momentum for merger activity, whether it’s to improve quality, access or transparency in the healthcare industry.

“I think everybody's kind of ready now to put the deals that they've had on the side burner into motion,” Shehata says.

• Read more: Looking at how hospitals will be using AI in 2025

AI driving deals

While there’s enthusiasm for more deal-making in the year ahead, the number of transactions in the healthcare and life science sectors dipped in 2024, compared to the previous year.

The number of mergers and acquisitions in life sciences fell from 991 in 2023 to 898 in 2024. Transactions in the healthcare industry, including hospitals, payers and healthcare service firms, fell from 932 in 2023 to 845 in 2024.

As artificial intelligence plays a bigger role in healthcare, more organizations are going to be looking to make deals with companies offering AI solutions, Shehata says.

AI “is actually one of the areas we are really excited about,” he says.

“It's about AI making its way into healthcare and life sciences in ways that we're kind of still imagining,” he says. “And I think at the end of the day, you're going to see the big players at the top look for ways to roll up some of these smaller technologies. Because healthcare doesn't like to buy point solutions. They like to buy platform solutions.”

Shehata pointed out that big tech players, such as Oracle, Microsoft, Google, and Amazon Web Services, have made major steps into healthcare. He notes Oracle’s decision to move its headquarters to Nashville, Tenn., “the center of healthcare innovation.”

“Everybody's putting their resources into offering products and services for healthcare,” Shehata says.

He also says firms offering solutions to improve the sharing of information between healthcare providers and insurers are drawing more interest.

“We've been doing a lot of work around interoperability between payers and providers,” Shehata says. “I think those areas will also be ripe for joint investment between tech, private equity and providers.”

Healthcare information technology firms are also likely to be appealing targets for mergers and acquisitions, KPMG projects. Healthcare providers continue to face staffing challenges and are looking for ways to ease administrative burdens, and IT firms that can improve efficiency in revenue cycle management and other workflows are poised to do well.

Most life sciences executives were particularly optimistic about the prospect of more mergers and acquisitions, as 86% of those surveyed expected to engage in more deals in 2025.

• Read more: AI in healthcare: What to expect in 2025

Potential headwinds

Some headwinds could slow down dealmaking in the healthcare and life sciences industries, including interest rates.

If inflation persists and the Federal Reserve only cuts rates twice this year, higher borrowing costs could have an impact on the pace of dealmaking, according to the KPMG report.

Those looking to make deals may have to spend more, as most executives expect an uptick in valuations. A solid majority (62%) projected valuations to rise in the coming year, while 23% expected valuations to remain flat, according to KPMG’s survey.

There is some uncertainty surrounding the Trump administration, including the prospect of cutting funds for health research in some areas, Shehata says.

Other potential headwinds for healthcare deals include high costs for labor.

“When we still look at the costs of the fundamentals of our industry, labor costs are still very, very high,” Shehata says. “You know, the availability of those resources is still very limited.”

Healthcare leaders are facing higher supply costs as well, which Shehata says should prompt discussions among health organizations to find ways to trim expenses elsewhere, such as reducing energy costs.

“With elevated prices across the board, the question is, how fast can we start to see that modulation in our industry? And if those prices stay high, it's going to be more challenging to find value in our industry,” Shehata says.

Looking ahead, Shehata says providers and payers increasingly have to demonstrate quality and access. He says there’s growing pressure from investors for organizations to demonstrate if they are driving value.

“I think those solutions that bring quality, access and patient advocacy and transparency together and are going to be much more sought after in the year to come,” Shehata says.