Private equity firms had one of the strongest years for healthcare trading in 2022, according to a PitchBook analysis published Monday.
An estimated 863 healthcare private equity deals were announced or closed last year. That’s down nearly 15% from 2021, but up more than 18% from 2020, the market research firm reports. PitchBook extrapolated the annual estimate using transactions recorded in the third quarter and historical data to approximate fourth quarter transactions.
“The year 2022 is, by historical standards, a really good year for healthcare deals and what they are,” said Rebecca Springer, senior analyst for healthcare at PitchBook. What we’re seeing in Q4 is standard trading, at pre-pandemic levels.
Private equity investing is becoming more popular in the healthcare sector as investors look to disrupt the industry and expand, particularly in the intensive care sector. These arrangements—and their subsequent cost-cutting measures—have been criticized for their potential negative effects on patient care. But investors continue to seize opportunities in the typical recession-proof sector.
However, transaction numbers slowed as they progressed to 2022 as challenging macroeconomic conditions and higher staffing costs weighed on the sector. There is also more competition for private capital as market lenders are less willing to take on risk. Springer says smaller deals tend to be more successful.
There were an estimated 158 transactions in the fourth quarter, down from 214 in the third quarter. They cover a wide range of services, including dental, home health and multi-specialty care.
According to PitchBook, transaction numbers are expected to decline further in the first half of 2023, and macroeconomic conditions will largely determine what happens in the second half of the year.
Private equity investors continue to see great potential in primary care, especially for older patients and Medicare Advantage-focused platforms. But the number of primary care transactions fell to an estimate of 14 last year, compared with 25 in 2021 and 17 in 2020. Springer attributes this drop to a market correction during the COVID pandemic. -19 progresses and indicates that there are still lots of deals available.
“There’s a lot of chess being played in primary care,” says Springer. “Right now, there are a lot of groups trying to make the biggest mark possible to quickly get ahead of the value-based care trend we are all headed for.”
An increasing number of “payers,” such as UnitedHealth Group and Humana, and major retailers, such as CVS Health and Walmart, are investing in clinical operations. Adding to the competition are value-based care support companies that provide software and management support to vendors that adopt value-based contracts and accept the risk of price increases. Many private equity firms are exploring these partnerships as a less capital intensive option that could lead to an acquisition.
