Healthcare M&A is poised to rise in the second half of 2024 | Viewpoint

Healthcare mergers and acquisitions (M&A) were expected to make a comeback this year and so far that’s mostly on track.

Mark Williams

In the first half of this year, global healthcare and life sciences sell-side deals, especially asset sales and mergers on Datasite, which facilitates about 14,000 new global deals annually, increased 6% compared to the same time last year.

Buy side deals, or asset purchases, on Datasite were up even more at 24% in the first six months of this year compared to last year. Since this activity represents deals at their inception rather than publicly announced, it provides a good indication of what’s to come in the next six to nine months.

Financial distress, value-based care, and digital healthcare services are some of the forces driving the activity. In the U.S., low reimbursement rates, regulations and higher costs continue to hurt some healthcare providers, pushing them to seek deals with larger partners, while others are looking to make strategic investments in value-based care initiatives.

• Read more: Why hospital merger activity could rise in the second half of the year

To stay ahead of the competition and provide better care to patients, many organizations are also looking to acquire innovative technologies, products, or services. Some of the top areas of investment interest are in digital health, such as telemedicine, remote monitoring, and digital therapeutics.

Artificial intelligence (AI) also continues to power investments, particularly as the technology can help examine patient records, identify diseases early on, and suggest enhanced patient care services and therapies – often at a lower cost while simultaneously increasing overall effectiveness. In fact, the global AI in healthcare-market size is expected to increase to $188 billion by 2030, up from $15 billion in 2022.

Private equity investors are also investing in high-growth areas such as healthcare IT, life sciences and medical devices, as well as opportunities that improve patient outcomes, while reducing healthcare costs.

Yet there are still several challenges to completing healthcare M&A deals, not the least of which is increased regulatory scrutiny. Given its critical importance, the healthcare sector often attracts significant attention from regulators.

In the U.S., antitrust authorities have been working to prevent hospital consolidation and have begun investigating private equity’s investment impact on medical care and costs. Additionally, healthcare M&A can involve potentially sensitive patient data, which is under strict protection laws such as the Health Insurance Portability and Accountability Act (HIPAA) in the U.S., and the General Data Protection Regulation (GDPR) in Europe.

Discrepancies in valuation expectations between buyers and sellers can also pose a significant challenge.

Companies will need to conduct thorough due diligence and leverage expert valuation services to bridge gaps and reach mutually agreeable terms. Following that, successful M&A requires effective integration. Post-merger integration in healthcare is particularly complex due to differing IT systems, legacy components, corporate cultures, and operational practices. With the advent of AI, this has become an even bigger consideration for companies looking to acquire and requires thorough due diligence and risk aversion.

The fact that 2024 is a historic election year could also play a crucial role in shaping healthcare M&A. In the U.S., the outcome of the presidential election will have far-reaching implications for healthcare policy and regulation. Similarly, recent elections in France and the United Kingdom are expected to result in policy, regulatory, and tax changes.

Healthcare dealmakers and stakeholders will need to remain adaptable and focused on due diligence processes, leveraging opportunities as they arise while navigating the complex landscape of regulatory and political challenges. This way, they can position themselves to capitalize on opportunities, while driving long-term growth and innovation throughout their organizations and industry.

Mark Williams is chief revenue officer, Americas, at Datasite.