Despite all the headwinds straining the healthcare M&A market, deal activity stabilized in the third quarter of 2024, according to preliminary results in the LevinPro HC database. With 489 deals on the books in the last week of September, we saw only a marginal decline in activity compared with the second quarter of 2024 and year-over-year numbers. From April to June, there were 499 deals, and in Q3:23, activity reached 516 deals.
Disclosed spending followed a similar trend to quarterly deal volumes, which is not always the case. Announced prices hit approximately $44 billion in Q3:24, a 7% decline compared to the second quarter ($47.4 billion) but a 7% year-over-year increase ($41.01 billion). Naturally, the technology sectors accounted for the bulk of the spending, or 62% ($27.01 billion) of the third quarter’s total.
Spending partly remained healthy because of a surge of activity in sectors like Hospitals and Physician Medical Groups, which saw some large deals in the third quarter. In early August, Tenet Healthcare sold a 70% stake in Brookwood Baptist Health to Orlando Health for $910 million in cash, implying a total value of $1.3 billion for the health system; in September, McKesson Corporation purchased Core Ventures, a Florida-based management services organization for physician groups, for $2.49 billion.
If we annualize the first three quarters of 2024, volume is expected to hit approximately 2,000 transactions, which is still less than the 2,197 deals announced in 2023. On the one hand, the Federal Reserve did finally cut interest rates in mid-September, lowering the target range by 0.5% to 4.75% to 5%, with many media outlets suspecting another rate cut in November as inflation continues to slow. Interest rates have been a real headache for dealmakers, and this cut should bring some relief and drive deal closings.
However, the United States is also caught up in the final stretch of a presidential election, which drives a lot of uncertainty in the market and beyond, and nothing spooks investors and dealmakers more than uncertainty. Typically, it would be an interesting experiment to compare numbers from the last presidential election to see how the market fared, but the 332 deals announced in the third quarter of 2020 could reflect any number of chaotic variables we were dealing with that year.
Most of the deals, or 73%, targeted healthcare service providers, such as physician groups or home health agencies. Overall, healthcare services M&A volume dropped by 3% compared with the second quarter and 6% compared with the same time in 2023. The hospital market saw a notable increase, with 21 deals on the books, up from 16 in the second quarter. There were several deals for hospital chains in India and Southeast Asia, but in the United States, a lot of activity results from divestments by health systems, such as Ascension, Community Health Systems and Tenet Healthcare.
In the third quarter, a diverse mix of investors participated in the healthcare M&A market. Private equity firms and their portfolio companies accounted for approximately 34% of deals, or 168 transactions.
Private equity buyers are very active in the healthcare services market, but in the third quarter, 25% of private equity deals were for digital health, medical devices and other life science companies. Clayton Dubilier & Rice and TowerBrook Capital Partners, LP, two private equity firms, acquired R1 RCM Inc., a revenue cycle management provider, for $8.9 billion. In another deal, CVC Capital Partners, a Luxembourg-based private equity firm, acquired the Therakos platform, which is used to treat a range of immune-related diseases, from Mallinckrodt plc for $925 million.
The uptick in deal activity for private equity in healthcare technology sectors can be explained by a few factors. Some are the headwinds on the services side, such as labor issues and increased scrutiny of private equity investments in the space. However, as healthcare service providers increasingly rely on technology in their workflow, the demand for those platforms will only grow. Private equity investors see that trend and want to capitalize on it.
Real estate investment firms and REITs were also active in the third quarter, announcing a total of 31 deals. Nearly all of them were for medical outpatient buildings, but there were a few notable deals for hospitals. Assura, one of the United Kingdom’s leading specialist healthcare property investors and developers, purchased a portfolio of 14 U.K.-based hospitals for $642.7 million, and Ventas bought the real estate of five long-term acute care hospitals from Kindred Healthcare.
It’s important to note that these are only preliminary results captured in the last week of September. There are still a few days left in the quarter, and we could see more announcements. Plus, more deals may surface once we comb through quarterly reports in the next few weeks, so for any updates, check out the LevinPro HC platform.
