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Q4-21 Market Update: Healthcare M&A Activity Remains Strong to Close Out 2021

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Q4-21 Market Update: Healthcare M&A Activity Remains Strong to Close Out 2021

Healthcare services M&A activity rebounded in 2021 as investors continue to look to take advantage of the tailwinds in the healthcare space despite challenges presented by the pandemic. Providers and management teams that navigated barriers to providing services during the pandemic, or even capitalized on circumstances, continue to reach pre-pandemic or elevated financial levels. A variety of factors contributed to the uptick in M&A activity, including pandemic infrastructure improvements, government assisted coverage, threats of an increase in long-term capital gains taxes, and pent-up demand for elective provider-based services.

Transaction activity in Q4 2021 saw a 31% increase in deal volume from the previous quarter, supported by a heightened appetite from private equity investors, representing 65% of total M&A volume (186 add-on acquisitions, 89 platforms created, and 26 secondary buyouts). Healthcare services continues to benefit from private equity groups looking to deploy record levels of dry-powder in a sector primed for platform growth. The provider services space is also trending into the next phase of the private equity investment cycle as an increasing number of secondary buyouts take place, in areas such as ophthalmology and specialty dental services. As investors prepare for elevated volatility levels in the public markets and the Federal Reserve works to quell inflation, alternative investment firms are expected to see large fund inflows from limited partners seeking to diversify their risk into high growth, privately held businesses. Provident believes the combination of public market volatility, record high dry-powder, and increased demand for private equity will continue to drive investment in private markets, particularly surrounding more defensible sectors such as healthcare services.

Despite the emergence of the Omicron variant, the last quarter resulted in record deal activity for the year, likely assisted by the threat of capital gains tax increase accelerating year-end closings. While Provident does not expect M&A volume to rise as drastically as it did from Q3 to Q4 2021, we expect transaction activity to remain steady entering 2022. Private equity’s acquisitive behavior does not show any sign of slowing in the near-term, though it is important to note that dynamics between predicted hikes in interest rates coupled with subsiding Omicron fears creates complicated factors at play in US markets.

To print and download the full Q4 2021 Market Update report, please click below…

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