Provider-related deals accounted for 47% of mergers and acquisitions in the healthcare industry in 2022, which saw nearly $90 billion in revenue from transactions, making it the second best year on record value-wise, as well as in volume.

Surpassing 23%–24% volume shares in 2020 and 2021, M&A activity among providers was the second highest in the past decade, with hospitals and health systems, ambulatory surgery centers, and physician offices making up more than half of these buyouts, according to Bain & Company’s 12 annual Global Healthcare Private Equity and M&A report.

While 30% below 2021 volume levels, M&A activity in North America accounted for 53% of deal activity, driven by shifts to value-based care models. European providers saw 40 transactions, down 5% from 2021, that were largely driven by asset-light retail health chains emphasizing operational efficiency as a value driver instead of self-pay. And the growth of hospital platforms and continued adoption of high-quality, specialized care were responsible for 38 M&A deals in Asia-Pacific, down from 42 in 2021.

"Particularly in the U.S., care management aimed at specific populations gained momentum in 2022, accelerated by delivery model innovation, regulatory changes, payers’ cost-containment efforts, and consumers’ desire for convenience," wrote the authors of the report.

This includes specialty services for complex patient populations, such as home care, specialty pharma, and ambulatory infusion services, as well as behavioral health services.

Services for labor force management and revenue cycle management also fueled deals, and despite labor supply and inflation challenges, M&A activity among providers is expected to remain a significant portion of healthcare deals.

"Investors will continue to look for creative ways to compete within the subsector, for example placing bets within value-based care, investing in targeted care delivery models, and expanding next-gen PPMs to additional specialties," wrote the authors.

The report attributes a large part of the year's overall M&A activity to fast-paced investments in the first few months, especially around value-based care and development of generative AI technologies for images and text. These trends were especially high in the biopharma and life sciences industry, where six of the top ten deals occurred, and healthcare IT, where buyout volume was also the second best on record, driven mainly by provider, biopharma and payer interest.

For value-based care, the authors say such arrangements will capture 15%–20% market share from traditional fee-for-service providers in primary care by 2030.

They recommend investors develop clearly defined integration strategies and practice operational due diligence, as well as re-evaluate fund strategies and subsectors and investments they prioritize, and look at companies with historically higher profitability that can withstand downturns as potential partners.

“Funds that identify the right operational levers early and execute their margin improvement playbooks will achieve the full potential of their assets,” they wrote.

Going forward into 2023, the authors say that healthcare-specific funds will look at new sources of capital to complete deals, including public-to-private partnerships, recapitalization, corporate partnerships, and carve-outs, where a parent company sells a minority interest of a subsidiary to outside investors.

“Some funds will look for ways to engineer the leverage they need for large deals. Others will pivot toward smaller deals where securing financing or writing larger equity checks may be more plausible,” they wrote.

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