Published January 2024
Coming off the heels of an exceptional year for healthcare services M&A in 2022, 2023 saw a return to normalcy with deal flow slipping back to pre-pandemic levels. Despite the decrease in transaction volume to start 2023, deal size remained elevated due to CVS and Amazon investing a combined $22.5B across three flagship transactions in Q1 to execute vertical integration strategies. While Q1-23 and Q2-23 showed continued resilience, the second half of the year witnessed a recalibration of deal structures and valuations in response to macroeconomic headwinds, notably rising interest rates and inflationary pressures. This activity remained consistent with the forward-looking consensus that add-on acquisitions would take priority over larger platform adjustments following the rocky end to 2022.
The uncertain macroeconomic environment led investors to prioritize smaller, strategic acquisitions for long-term value creation. One noteworthy trend was the continuation of platform roll-ups as a preferred strategy in the private equity playbook with add-on acquisitions representing 86% of transactions in the healthcare services industry. This preference for smaller, value-driven deals contributed to sustained deal volume even as overall transaction value declined.
The decline in aggregate transaction value throughout 2023 can be partially attributed to a pullback in valuations across most sectors. Despite this, top tier businesses with strong growth were still able to command premium valuations while lower tier assets faced greater value compression. Additionally, lenders scrutinized pro forma adjustments more rigorously than in years prior given the tighter macroeconomic conditions, leading to a reduced supply of debt available to finance transactions.
While a quieter year for overall M&A activity, Provident ended with one of the firm’s strongest years, closing 14 transactions and driving over $1 billion in aggregate transaction value on behalf of our clients.
- Reversion of M&A Activity to Pre-Pandemic Levels
- 2023 Healthcare M&A Trends: Sector Highlight
- Provident 2023 Closed Transactions
- Provident Case Studies