In our Healthcare Investors Roundtable on May 23rd moderated by Michael George (Healthcare Partner at Withum), Renee Hellman (Principal at Marsh & McLennan Agency), and Andrew Rivers (Client Executive at Marsh & McLennan Agency), healthcare investors convened to share their perspectives on 2024 Healthcare M&A Trends, investment strategies, and industry challenges.
Healthcare M&A Trends: Activity Resurgence:
Despite a general market slowdown, Q4 2023 saw a notable uptick in healthcare M&A activity, which continued into Q1 2024. Valuation multiples, however, have dropped significantly, averaging 6.5 times EBITDA from 9 times in 2023. This adjustment reflects a more realistic cost of capital, prompting investors to adapt with value-bridging structures like earnouts and equity rollovers.
Valuation and Deal Structuring Insights:
The valuation landscape varies, with smaller healthcare deals facing significant drops, while larger platforms maintain relatively higher multiples. Behavioral health, medical distribution, and clinical research trials are particularly dynamic sectors. Investors are transitioning from revenue multiples to EBITDA multiples, favoring stable financial evaluations.
Navigating Interest Rates and Regulatory Hurdles:
Elevated interest rates impact deal-making, with private credit filling gaps left by selective banks. The upcoming election and potential FTC regulations add layers of uncertainty. Investors are focusing on securing long-term, stable capital to mitigate interest rate pressures and strategically planning for regulatory changes.
Investment Opportunities and Reimbursement Challenges:
Reimbursement rates, particularly for Medicaid and Medicare, are critical. Aligning static reimbursement rates with rising labor costs necessitates enhancing provider productivity and operational efficiency. Simultaneously, value-based care and cardiology emerge as promising investment areas. Success in these fields requires robust infrastructure and data analytics to support sustainable models. Although the adoption pace is slow, the potential for improved healthcare outcomes and cost efficiency remains high.
Optimistic Outlook:
Despite current challenges, healthcare investors remain optimistic. Strategic collaboration, innovative deal structures, and adaptability to regulatory and economic changes are key to navigating the sector. The roundtable underscored the importance of agility and informed decision-making in this complex landscape.
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By Valeria Ruiz, Opus Connect
August 2024
