Following some positive trends in the market, healthcare M&A in 2024 is set to boom. Shrinking valuations, the addition of new players on the market, changing industry dynamics, and the healthcare sector divesting non-core assets all point towards an interesting time for growth as well as new challenges. This means that there may be some growth in M&A activity this year, following on from a decline in M&A activity in the third quarter of 2023.

This article explores some of the key healthcare industry trends, as well as pointers for navigating the best sectors and sub-sectors to invest in 2024.

Key M&A Themes in the Healthcare Sector

Changes in healthcare technology, regulations, and market dynamics are all leading to increasing M&A activity in 2024, as well as potential disruption for other M&A deals. In 2023, it was generally a slow year for M&A transactions. This was thanks to a combination of factors, such as rising interest rates, inflation, and geopolitical tensions. However, current M&A trends suggest that due to a healthier economic picture and large amounts of capital businesses have accumulated, 2024 might be more positive.

In this next section, we look at the key themes:

  1. Technological advancements in the biotech industry, particularly cancer therapies;
  2. Mental healthcare industry growth, such as in telehealth and AI-based tools;
  3. AI and healthcare tech growth generally;
  4. Regulatory changes within the industry affecting M&A deals.

1. Technological Advancements in the Biotech Industry

Technological advancements in the healthcare industry are being influenced by the globally aging population, driving the demand for long-term as well as end-of-life care. This potentially leads to M&A activity across various healthcare sectors impacted by this. One such health care sector impacted by this growth is the biotech industry, due to its focus on cancer treatments providing potentially safer alternatives to chemotherapy, as well as remote patient technology.

Remote Patient Technology

Remote patient technology to monitor patient data on an ongoing basis may be beneficial to the management of chronic illness and other long-term care patient needs, which is a growing market. RPT might also lead to reframing preventative and proactive healthcare, which means that this sector may become attractive to future investors this year 1.

2. Mental Healthcare Industry Growth

The mental healthcare industry has grown since the COVID-19 pandemic 2 . With mental healthcare providers becoming increasingly involved in AI-based tools, telehealth, rising workloads, providers are turning to new technology in order to accommodate patient services. The industry is therefore evolving to meet the needs of an increasing patient-base, as well as in providing more flexible services that do not require face-to-face patient appointments.

3. AI and Digital Healthcare Tech Growth

In 2023, Universal Health Services (UHS) announced that it was a founding partner in Hippocratic AI 3. This is a tech company building the first Language Learning Model AI which can safely deal with administrative applications unrelated to patient diagnosis.

Therefore, investors may benefit from looking at new technologies arising in the mental healthcare industry, such as safety-first LLM tools, as an area set for considerable growth. Growth in the teletherapy industry, as well as AI-powered drug discovery platforms, are also set to become attractive hospital merger and acquisition opportunities in 2024 2 .

4. Regulatory Changes to the Healthcare Industry

Regulatory changes may affect the outcome of healthcare M&A. Even despite regulatory changes to the healthcare industry, 2024 is set to be a busy year for healthcare merger & acquisitions  4. With the introduction of new M&A guidelines from the Federal Trade Commission and the U.S. Department of Justice, consummating deals may be held back or delayed, particularly in the short term as new rules will have to be followed by parties concerned.

Despite this, one of the biggest trends predicted this year may be interregional hospital merger deals which aren’t as affected by new regulatory requirements as bigger, intramarket M&A deals. Therefore, you may expect cross regional deals, such as in the case of the Kaiser Permanente-Geisinger deal.

Deal Opportunities in Healthcare M&A

What healthcare M&A opportunities are on the horizon for 2024? Larger pharmaceutical companies will be looking at mid sized biotech companies to fill gaps in their pipelines 5. Changes to industry technology are affecting this, as well as new patient needs (which includes chronic illness care, and long-term health needs affecting an aging population).

Advances in remote patient technology is increasingly becoming a lucrative area for investors, as this becomes an important feature in preventive and proactive healthcare. This includes technology such as patient sensors and other forms of wearable devices. Currently, remote patient technology is covered by commercial healthcare plans such as Medicaid, making these areas of greater interest to investors 6.

Mergers and acquisitions may start to emerge in 2024 as AI healthcare startups begin to grow, such as in areas like teletherapy, administration, and drug discovery 7. Some midsize startups with point solutions will consolidate into platforms or mergers of multiple point solutions, in order to create more robust platforms.

Venture capital funding will gradually tread downward for digital health, making mergers and acquisitions a more natural path for digital health startups this year.

M&A Hotspots in the Healthcare Industry

In this next section, we’ll be looking at some of the key M&A hotspots in the healthcare industry, including some of the biggest deals we saw in 2023 — and what they can tell us about the year to come.

Biotech Industry M&A

The cancer treatment industry is experiencing some major M&A deals in Q4 2023, which is a promising trend for investors. Pfizer has recently completed a $43 billion acquisition of cancer specialist Seagen8. Seagen is a world-leading biotech company and a market leader in antibody drug conjugate technology. Pfizer is restructuring around Seagen, so this means that they respect the trajectory that they are already taking.

Similarly, Merck and Co has paid Daiichi Sankyo $5.5 billion in order to develop three new antibody drug conjugates, which could eventually be valued at $22 billion (October 2023). This cancer therapy will provide an alternative to chemotherapy, therefore potentially reducing damage to healthy cells 9.

Healthcare providers are also continuing to show an interest in digital tech acquisition, with companies like UnitedHealth Group, CVS Health, and Walgreens Boots Alliance acquiring digital tech companies in the last 12 months10.

Securely manage confidential information, M&A activity, and more with CapLinked.

M&A Volume Data and Trends

In 2023 Q411, the following sub sectors had the highest volume in deals:

  • Life sciences and pharmaceutical subsector (126)
  • Digital health (76)
  • Medical device and supplies (62).

Gene therapy and cancer treatments in particular were active areas for M&A transactions, and will likely continue to be so in 2024. However, they note that transaction volume for 2023 in the life sciences and pharmaceutical sector is overall down relative to 2022. Digital health services are predicted to be promising for M&A due to the increased interest in AI applications for healthcare, but saw a decrease in volume towards the end of 2023.

Impact of External Factors on Healthcare M&A

Market Dynamics and the Macroeconomic Picture

Interest rates, valuation gaps, and the macroeconomic picture might be affecting M&A activity this year. The healthcare M&A outlook in 2024 makes a marked improvement on 2023’s deal environment 12. Due to macroeconomic challenges like the increasing cost of capital and margin compression from inflation, this caused many sellers to hold off during the first half of 2023. Because of this, there is now a pent-up demand, leading to a return of deal activity in 2024.

Mitigating Risks and Capitalizing on Opportunity

Despite this potential growth in opportunity in 2024, it may still be important to mitigate potential risks. As new federal regulations are introduced by the US government this year, business partners may find that some deals are held back or delayed as they adjust to these new requirements. However, as previously explained, interregional deals are likely to be as affected by these changes, which may make these a better opportunity to capitalize on in the short-term.

While the digital health services sector declined in volume at the end of 2023, this may not continue in 2024 as interest in remote patient monitoring and AI become bigger trends and the scope for their usage continues to grow. M&A opportunities in this subsector, therefore, may become more apparent as the year progresses.

Strategies for Success in Healthcare M&A

Some practical tips and strategies for navigating the healthcare M&A include:

  • Investing in sub sectors that demonstrate or suggest growth, such as digital health and medical devices, particularly those relating to AI-based technologies, as well as remote patient monitoring. Investors might also note that on a more granular level, pharmaceutical companies working with cancer therapies and chronic illness treatments may also be lucrative, as these are also experiencing some growth this year.
  • Focusing on interregional M&A deals may work for companies looking to navigate deals in the short-term, as they are less likely to be affected by new regulations to the healthcare market.

While navigating healthcare M&A, it is crucial to remain committed to due diligence, negotiation, and post-merger integration.

Due Diligence

As mergers and acquisitions are highly complex transactions that require documentation to be reviewed by multiple parties such as lawyers, bankers, advisors, and accountants, it’s important that the process is as smooth as possible.

This reviewing process helps you to meet due diligence requirements – by making sure that the documentation fully supports the decision to make your transaction. However, this process can be slow, as this documentation has to not only be reviewed, but it also has to encompass all of a target company’s financial statements, and information about their operational state.

Post-merger Integration

A smooth-sailing post-merger integration is also vital to the M&A transaction process. That’s because during the merge, a company’s working parts may be in flux. It’s therefore important to keep your eyes on your overall business strategy goals, once the merger is complete. Consider creating a post-merger checklist, which looks at:

  • A timeline of public-facing changes;
  • Human resources requirements;
  • IT systems merges;
  • Senior leadership dynamics;
  • Organizational structure;
  • Manager-employee relationships;
  • Team dynamics;
  • Communicating company and brand culture.

This is where CapLinked steps in – we keep your documentation safe and confidential throughout the entire M&A process. By keeping your documentation safe via our virtual data rooms, you can stay committed to due diligence requirements, as well as close deals more quickly and efficiently.

Interested in learning more? Request a quote for our industry-leading Enterprise Virtual Data Room today to experience the CapLinked difference.

 

Sources:

  1. 2024 Predictions: Unveiling the future of healthcare mergers and acquisitions. MobiHealthNews. Published December 8, 2023. Accessed February 16, 2024. https://www.mobihealthnews.com/news/2024-predictions-unveiling-future-healthcare-mergers-and-acquisitions
  2. Gonzales M. Mental Health Executive Forecast: New Business Models, AI and Value-Based Care to Define Industry in 2024. Behavioral Health Business. Published December 18, 2023. Accessed February 16, 2024. https://bhbusiness.com/2023/12/18/mental-health-executive-forecast-new-business-models-ai-and-value-based-care-to-define-industry-in-2024/
  3. Uhs News. Transforming Healthcare through Technology Innovation. UHS News Online. Accessed February 16, 2024. https://uhsnews.com/transforming-healthcare-through-technology-innovation/
  4. Hut N. Experts forecast a busy year for healthcare M&A even with changes to regulatory oversight. HFMA. Published January 4, 2024. Accessed February 16, 2024. https://www.hfma.org/finance-and-business-strategy/strategic-partnerships-mergers-and-acquisitions/experts-forecast-a-busy-year-for-healthcare-ma/
  5. Global M&A Industry Trends in Health Industries. PwC. https://www.pwc.com/gx/en/services/deals/trends/health-industries.html
  6. 2024 Predictions: Unveiling the future of healthcare mergers and acquisitions. MobiHealthNews. Published December 8, 2023. https://www.mobihealthnews.com/news/2024-predictions-unveiling-future-healthcare-mergers-and-acquisitions
  7. 2024 outlook: Health IT investment, M&A and AI. Healthcare IT News. Published November 16, 2023. Accessed February 16, 2024. https://www.healthcareitnews.com/news/2024-outlook-health-it-investment-ma-and-ai
  8. Pfizer Completes Acquisition of Seagen | Pfizer. www.pfizer.com. https://www.pfizer.com/news/press-release/press-release-detail/pfizer-completes-acquisition-seagen
  9. Daiichi Sankyo and Merck Announce Global Development and Commercialization Collaboration for Three Daiichi Sankyo DXd ADCs. Merck.com. Accessed February 16, 2024. https://www.merck.com/news/daiichi-sankyo-and-merck-announce-global-development-and-commercialization-collaboration-for-three-daiichi-sankyo-dxd-adcs/
  10. Price L. Biggest trends and most likely strategic buyers expected to shape Digital Health M&A in 2024. Nelson Advisors Blog. Published September 30, 2023. Accessed February 16, 2024. https://www.healthcare.digital/single-post/biggest-trends-and-most-likely-strategic-buyers-expected-to-shape-digital-health-m-a-in-2024
  11. Epstein Becker & Green PC, KPMG, and Ziegler. Health Care M&A Insights: Q4 2023 & Outlook for 2024 Deal Activity. Modern Healthcare. Published February 01, 2024. Accessed February 16, 2024. https://www.modernhealthcare.com/mergers-acquisitions/health-care-ma-insights-q4-2023-outlook-2024-deal-activity
  12. DC Discusses: Healthcare M&A Outlook for 2024. DC Report. Published January 31, 2024. Accessed February 16, 2024. https://www.dcadvisory.com/news-deals-insights/insights/dc-discusses-healthcare-m-a-outlook-for-2024/