Q4 2025 Private Equity Update
Middle-market healthcare services M&A activity continued to stabilize in Q4 2025, with private equity investor sentiment improving as the year progressed. While full-year transaction volume remained below the highs of 2021–2022, momentum in the second half of the year was notably stronger than the first half, driven by easing financing conditions, improved visibility on interest rate policy, Medicaid stabilization, and increased confidence in underwriting assumptions. As capital markets reopened selectively, many high-quality assets that had been sidelined earlier in the year re-entered active sale processes.
Platform transaction volume remained uneven across healthcare services subsectors. The slowdown was most pronounced in multisite provider models, particularly those with heavy labor exposure or outsized dependence on government reimbursement, reflecting persistent wage inflation, reimbursement pressure, and continued uncertainty around Medicaid funding mechanics and site-of-service reform. That said, PE-backed strategics remained active buyers, with add-on acquisitions continuing to represent most completed PPM deals in Q4. Sponsors increasingly prioritized tuck-ins that expanded density, added complementary service lines, or improved payor mix rather than pursuing large, transformational platforms.
By contrast, several healthcare services verticals continued to outperform on both volume and valuation. Behavioral health, especially autism and outpatient mental health, remained among the most active sectors, supported by secular demand growth and scalable care models. Private-pay and hybrid home health, hospice, and asset-light outsourced services also saw sustained deal activity, with year-over-year volumes exceeding 2024 levels. These sectors benefited from more predictable margins, lower exposure to labor volatility, and clearer reimbursement visibility, making them attractive targets for both new platforms and add-on strategies.
Valuations in Q4 2025 reflected a bifurcated market. Average headline multiples across healthcare services remained modestly compressed relative to peak-cycle levels; however, differentiated, institutional-quality assets continued to command premium pricing. Businesses with strong organic growth, diversified payor exposure, defensible unit economics, good management teams, and demonstrated ability to scale in a constrained labor environment routinely cleared competitive processes. Scarcity of such assets limited overall deal volume but supported valuation resilience for top-tier opportunities.
Looking ahead, private equity sponsors enter 2026 with growing optimism. A backlog of sponsor-owned and founder-led healthcare services businesses are expected to come to market as financing conditions improve and sellers recalibrate valuation expectations (i.e., bid-ask spread continues to close). Investor appetite is likely to remain strongest in subsectors less exposed to Medicaid reimbursement risk and wage inflation, including outsourced services, healthcare IT-enabled services, pharma services, and select payor and employer-facing platforms, positioning healthcare services M&A for a stronger and more balanced environment entering 2026.
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