Healthcare M&A: a resilient performance against a challenging backdrop

12 June 2024

Despite an initial pause in mergers and acquisitions activity as the Covid-19 pandemic arrived in the UK, a wave of activity followed, with deal volumes at record levels in 2021. The market continued to be buoyant in 2022, but inflationary pressures and higher interest rates started to dent confidence in 2023. The M&A market became significantly more subdued; multiples in many sectors dropped back from the frothy levels of earlier years and deals took longer to complete. 

While the healthcare M&A market has not been immune to a lack of confidence in the market, it has remained resilient. This is due to the underlying long-term macro factors of the sector, such as an ageing population and the need for alternative private solutions to ease the pressure on the NHS. As a result of this, it has maintained more robust levels than some other industries.

However, the healthcare market is a diverse space, with businesses across the market capitalising on different opportunities and succumbing to different pressures. This diversity has been reflected in the M&A market, with some parts of the industry still receiving high levels of investment appetite, while others are viewed with more caution.

Which businesses are attracting the strongest investment appetite across healthcare? 

Given the well-known demands on the NHS, businesses that can alleviate this pressure continue to attract investors. This includes businesses using new technology to generate efficiencies or providing additional capacity (ie through clinical insourcing). 

As inflationary pressures have challenged margins, investors have sought to invest in businesses that have maintained a robust level of margin despite these pressures. We have seen this within the care sector, with investor appetite higher for specialist care providers than for other care providers.

Investors are also drawn to businesses that can provide greater certainty over their future revenue. Although always an attractive feature for investors, recent economic uncertainty has made this even more important. There are several areas of the healthcare market where this is demonstrated, including businesses providing services that are both regular and essential for the functioning of the healthcare market, such as the maintenance of healthcare equipment or diagnostic services.

We also continue to see high levels of M&A activity in the more fragmented parts of the market, as has been the case in veterinary and dental practices over recent years. We expect to see investors continuing to implement buy and build strategies, but there will likely be caution in investing in markets where there has already been a high level of consolidation.

What is next for the healthcare M&A market?

The macro factors underpinning the attractiveness of the healthcare market as an investment will continue to be relevant in 2024 and beyond. We expect to continue seeing high levels of investment appetite in certain areas of the healthcare sector. In addition, there is cautious optimism that, due to a degree of improvement in the overall economic environment, M&A activity as a whole will improve. Therefore, we anticipate a robust year for the healthcare M&A market.

Suneel Gupta, head of private healthcare, comments:

‘Despite deal activity and multiples across the healthcare sector being down on their recent peaks, the level of interest in the sector remains buoyant. Investors continue to be attracted by the greater demographical demands, opportunities for consolidation and continued support that the NHS needs from the private sector.

There has also been a real focus on how technology, including the better use of data and AI, can not only lead to greater efficiencies but also drive better patient outcomes.

It is likely that businesses that continue to invest in technological advances to drive their core business models are the ones that will generate the greatest returns for their shareholders.'

To discuss how we can support your healthcare business, please contact Suneel Gupta.

Suneel Gupta
Suneel  Gupta
Partner, Head of Private Healthcare
Suneel Gupta
Suneel  Gupta
Partner, Head of Private Healthcare