Merger and acquisition activity in the healthcare sector was lackluster during most of 2024, but in the last weeks of the year, activity took a sharp turn upwards. What is driving the sudden burst of activity, and will it continue into 2025? And what will be the key sub-sectors within healthcare that will attract the most attention?

In our latest webinar, panelists discussed the outlook for M&A in the healthcare sector in the year ahead including the significance of the second Trump presidency, technology and consumer trends that will shape the sector.

Healthcare sparks into life

From January to October of last year, M&A activity in the healthcare sector was struggling, according to Abby Roberts, Sr. Director of Datasite Insights at Datasite. Figures for the number of deals launched through Datasite in that period showed that global deal kick offs were up just 2% in the same period of 2023 and all that growth was in Europe, the Middle east and Africa or Asia Pacific. In the US, deal kick offs were unchanged.

But initial figures collated in the three weeks after the Presidential election on November 5^th showed a dramatic shift. US deal volumes were up 78% as the sector’s M&A activity went from lackluster to prosperous.

The obvious explanation might be assumed to be the election of Donald Trump to a second term, however panelists had mixed views about whether the Trump victory was the sole or even the biggest factor.

Tony Crisman, Managing Director and Head of Healthcare at Stout, said he believed the election was not the main driver for the turnaround, instead, arguing that the natural cycle of M&A was a more important factor.

“We've had about one to two years of a very difficult M&A environment where buyer and seller expectations were highly differentiated. We’ve had high interest rates and other dynamics that kept certain players out of the market. Now I think we're at the point both for venture capital and private equity in particular, when you're thinking about capital cycles, where there is a need to get some of these exits out in the market,” Crisman said.

Darrell Langlois, Senior Vice President Strategy and Business Development at Blue Cross and Blue Shield Louisiana, added that pent up demand for strategic action was a key factor.

“There is a little bit of pent-up strategies, the dynamics that we had weighing were that income statements of healthcare entities and clinical delivery assets were underwater. There were reimbursements that hadn't caught up with the utilization those clinical assets were seeing and that was taking away from capital. But recently I've seen some of the major assets in our market issue new debt and that's telling me they're going to be making some moves,” said Langlois.

Industry factors were also cited by Andre Ulloa, founder and Managing Director at M&A Healthcare Advisors, but he said the incoming administration in the White House was helping drive the market. Thanks to expectations of a deregulatory environment and a change at the top of the Securities and Exchange Commission and possibly the Federal Trade Commission had removed uncertainty for many buyers and sellers.

Jay Liebowitz, Managing Director at Centerstone Capital, raised a further dimension to the Trump Presidency that could impact the sector – immigration. With healthcare business highly dependent on labor costs, the impact of immigration controls could be significant for the sector, he argued.

Describing himself as ‘more bullish’ on the impact of the new Presidency, Chrisopher Olson, Partner at McDermott Will & Emery, said there was room for some specific policy changes that could ease M&A, notably the FTC merger guidelines introduced in 2023, and provisions in the Hart-Scott-Rodino Act that require pre-notification of authorities for any deals above a certain value.

“I think they're likely to abandon the 2023 merger guidelines the FTC established. If we anticipate that the Trump administration will abandon this approach and restore the prior guidelines, we think that will help deal flow some. Then the pre-merger procedure changes in HSR are set to go into effect on February 10^th, less than a month after Trump would take office. So those rules could still potentially be blocked by Congress, delayed by the president, or rescinded.

But, while Federal controls on M&A might lessen, Olson pointed out that the story might be quite different at State level where Democratic legislators could tighten controls in an effort to counter Federal deregulation.

Digital deals expected to lead

The webinar audience was invited to give their views on key issues including which sub-sectors or themes would be most active in healthcare M&A in the year ahead. The verdict was clear with 37% saying digital healthcare would be the biggest focus of action. The three options following digital health for most activity in 2025 were life sciences, value-based care, and consumer healthcare, each with 18-19% of the vote. And finally the option with the least predicted activity standing at 7% of the vote was behavioral health.

Panelists largely concurred that digital healthcare would be a key focus. “The real X factors are AI and the integration of telehealth. AI can subsidize for the diminishing labor force. I think also about efficiencies. A lot of what we're talking about right now in government and the corporate economy is very much about finding efficiencies so I think I can see why digital health would be number one on the list,” said Ulloa.

Langlois agreed that digital healthcare was rightly the top pick for M&A activity. Langlois also thought consumer healthcare had potential, but he argued that both the industry and consumers themselves were yet to get a clear understanding of this sub-sector role and potential.

When it came to value-based care Langlois said there was potential, but there was no clear model for how it could be taken forward. “In value-based care you’ve got a number of companies and mature companies coming out there to billion plus value. But in the marketplace, value-based care is a nut that has yet to be cracked. There's a lot of talk about value, but it's not there yet. We're approaching it both internally as well as through vendors, but they have basically taken a position in each and every model just to see which one will work.

Getting the deal sewn up

All panelists agreed that healthcare M&A would increase in the coming year and do so in a steady and stable way, but the less predictable issue could be the rate of deal closures. Data provided by Datasite showed closure rates during most of 2024 had been even declining across the globe and particularly so in the US where closures were down 7% in the first nine months of the year.

Identifying quality assets from the outset was vital to improving closure rates, according to Liebowitz pointing to organic growth opportunities as being attractive. Other panelists focused on the deal process.

“I think establishing a front-end process that educates the personnel on both sides about transaction expectations and timing is key,” said Olson adding: “One of the most common reasons that you see transactions fail is they drag on too long. People get deal fatigue, market conditions change, so both parties need to allocate adequate resources dedicated to the transaction.”

Crisman added that sometimes dealmakers could exclude modest bids too early in the process, when sometimes such apparently low bids might be no different to where the higher opening bids end up after further due diligence. “You need to change the process to include the really smart money, even if they're slightly lower bids,” Crisman argued. “They're the ones who will keep playing through the challenge because some of the diligence issues are ones they may already have been aware of.”

Data from Datasite and the expert panel’s views suggest 2025 will be a year in which healthcare M&A activity returns to growth and with the right preparation, data and processes in place, deal closures could also improve. But equally important will be for dealmakers to be nimble in an evolving market. As Liebowitz argued: “An M&A deal is a six-to-nine-month process if not more, so make sure that you are thinking about it early and getting the sense of the market as soon as possible, because the world will change.”