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Healthcare M&A trends: 2022 recap and 2023 forecast
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Healthcare M&A trends: 2022 recap and 2023 forecast

Mergers and acquisitions are a powerful tool for companies who seek growth and value generation. M&A brings numerous benefits including exploration of new markets, increased profits, and a possibility to reach a larger market share. That’s exactly why many companies consider M&A to stay the course during transformational times. And M&A activity figures in recent years are proof of that: in the last 10 years, global M&A value was exponentially growing, reaching its $5.2 trillion peak in 2021.

Bearing this in mind, the M&A Community is creating a series of articles to help businesses and executives take the first steps to dealmaking activity, supporting our global members to capture benefits beyond the expected synergies.

The pandemic outcomes transformed the world in ways that are still undiscovered; this statement is especially applicable to the main frontline player: the healthcare industry and life sciences M&A.

With this article, we want to provide you with a general overview of the healthcare sector in 2022 and the main factors influencing its growth in 2023.

A general overview of the healthcare M&A industry 

There have been more than 790,000 M&A transactions since 2000. Their total value amounts to over $57 trillion. The leading sectors are industrials, technology, and finance with 13.9%, 12.9%, and 12.2%, respectively. Healthcare takes 5.5%. To be more specific:

  • Healthcare equipment and supplies: over 15,000 transactions with a total value of $1,093 million. 
  • Healthcare providers and services: over 13,000 transactions with a total value of $773 billion.

In general, the healthcare industry is booming, and specialists expect to see even bigger growth. For example, the total transaction value was $250 billion in 2020. It increased toIn general, the healthcare industry is booming, and specialists expect to see even bigger growth. For example, the total healthcare M&A transaction value was $250 billion in 2020. In 2021, It increased to $436 billion, i.e. almost 56% more. And according to White & Case, in 2022, the total value of M&A healthcare deals was $375.1 billion with megadeals included.

Top healthcare M&A trends impacting the sector

Here are the main growth drivers for healthcare M&A:

  1. Development of biopharmaceuticals

The global biopharmaceutical market size is predicted to reach $856 billion by 2030. At the same time, traditional chemical medicines are slowing down.

2. Pharmaceutical e-commerce growth

Because of Covid-19 and social distancing, the use of online pharmacies increased by 17%. That’s why investments in the pharmaceutical M&A e-commerce business have been increasing since 2021.

3. Population growth

The current world population is about 7.7 billion people. It’s expected to reach 9.7 billion by 2025. Therefore, healthcare companies will have to provide services for more and more people.

4. Longer life expectancy

Globally, life expectancy has improved from 46.5 years in 1950 to 71.7 years in 2022. It leads to the growth in consumption of healthcare services, which impacts the whole healthcare industry and M&A in it.

5. Innovation

The impact of Covid-19 was huge. For example, new treatment technologies appeared, like RNA technology for more efficient vaccines. Besides, there’s a fast adoption of virtual care. Undoubtedly, healthcare is developing, attracting more M&A deals.

6. Covid-19’s ongoing impact

Despite getting closer to the post-pandemic era, Covid-19 keeps impacting the healthcare sector and elective surgery, in particular. This trend is likely to continue in the near future on a domestic basis in mental health hospitals, nursing homes, and ophthalmological institutions.

Healthcare M&A trends 2022 overview

Here are key factors and trends that impacted M&A dealmaking in 2022:

  • Decline in deal volumes

Unlike 2021, which was the year of the rebound for healthcare M&A, 2022 saw a dramatic downturn. The deal volumes in healthcare private equity were declining.

  • Interest rates and economic uncertainty

Healthcare private equity investors faced a reduced supply of assets they can invest in. Besides, they had to deal with rising interest rates and general economic uncertainty.

  • Supply chain, prices, and shortages

Other challenges were constrictions in the global supply chain, raised prices, and enormous shortages. They were caused by the pandemic and multiplied because of Russia’s invasion of Ukraine.

  • Large deals

Pfizer and Amgen were the most active pharma companies in terms of M&A during 2022. Both companies scored large deals that allowed them to boost their assets or enrich their portfolio.

  • Constant investments

Private equity firms were unenthusiastic toward hospitals and health systems in 2022. All because investors were discouraged by rising interest rates and labour costs. However, interest in physician practices and healthcare technology remained constant.

  • Healthcare costs reduction in the U.S.

The research shows more M&A deals in the healthcare industry should be expected in the U.S. The main reason is that the White House started working on reducing healthcare costs. The Biden administration signed an order aimed at reviewing merger guidelines for hospitals. It’ll ultimately result in more local M&A transactions.

Top markets of healthcare M&A in 2022

M&A activity differs among healthcare segments and depends on the type of healthcare provider. Here’s where buyers should look for healthcare M&A deals in 2022:

  1. Behavioral health market

Behavioral health M&A has soared over the past decade. This was especially well seen in 2021 when 149 behavioral health transactions took place. This is 34% more than it was in 2020, even despite the pandemic. In 2022, this is the most sought-after sector in healthcare services, especially for startups looking to enter the market.

2. Home care market

Care beyond inpatient settings has been gaining more prominence lately. The U.S. Centers for Medicare & Medicaid Services increased payments for home health services in 2022. That’s why going after deals in the home care market turned out to be a good idea in 2022.

3. Long-term care market

In comparison with 2021, the deal value in the long-term care market increased by 2% to $19.6 billion in 2022. The main reason for that is the aging population. However, there are several challenges it faces. Among them are shortages of staff and skilled nursing facilities. 

4. Physician groups market

The physician medical group M&A market rocketed in the final quarter of 2021 and continued to be of particular interest in 2022. Through May 15, 482 deals took place with a total value of $5.7 billion.

Top 3 healthcare M&A deals of 2022 

Though the M&A deal activity in the healthcare sector wasn’t booming in 2022, there were a number of large deals that made the general year’s outcomes quite satisfying. The top 3 healthcare deals of 2022 are listed below.

1. Advocate Aurora Health and Atrium Health

Advocate Aurora Health and Atrium Health, healthcare systems and hospital networks, announced their intention to merge on 11 May 2022. Together, they aimed to create a leading health and wellness delivery system to meet the patients’ needs in the best way possible. For this, they planned to redefine how, where, and when the care is delivered. 

The companies finalized the $27 billion deal in December. As a result, the combined healthcare system, called Advocate Health, has become the fifth-largest non-profit integrated health system in the United States. It comprises over 1,000 sites of care and 67 hospitals with more than 21,000 physicians and 42,000 nurses, which allows them to serve about 6 million patients annually. Advocate Health delivers about $5 million in annual community benefits.

2. Amgen and Horizon Therapeutics

Amgen, a multinational biopharmaceutical company, announced its intention to acquire Horizon Therapeutics, another large biopharmaceutical company, on 12 December 2022. 

The deal was estimated at $28.3 billion and was one of the top healthcare acquisitions of 2022. Its key goal is for Amgen to boost its therapeutics portfolio by adding a complementary portfolio of therapies in rare diseases. The deal also aims to facilitate the usage of the commercial and medical legacy of Amgen and its international influence in order to foster the development of Horizon’s portfolio.

Additionally, Horizon can benefit from Amgen’s research and development and global manufacturing capabilities to improve its biological medicine therapies.

3. Pfizer and Biohaven

On 10 May 2022, Pfizer announced its plans to acquire outstanding shares of Biohaven that it didn’t already own. The focus was on the company’s CGRP inhibitor portfolio, and the migraine drug Nurtec ODT, considered to be the main jewel of the deal.

On October 3, 2022, Pfizer announced the deal’s completion worth $11.6 billion.

By financing this business acquisition, Pfizer expects to grow the CGRP franchise of Biohaven to more than $6 billion in peak sales.

M&A healthcare outlook for 2023

Below are the key forecasts that expectedly will be shaping healthcare sectors and influencing pharma companies in 2023:

  • New technologies

According to the survey of C-executives conducted by Deloitte, artificial intelligence (AI), machine learning (ML), business intelligence, and analytics are likely to have an essential role in healthcare market development.

  • Inflation

Due to inflation, which however appears to be stabilizing, the cost of consumer goods will be higher, making it impossible for some people to pay for medical services and care. Thus, companies and member firms that will be able to make costs for their products more affordable might get big attention.

  • Supply chain

PwC predicts 2023 to bring more onshoring, nearshoring, and “friendshoring” of supply chains by means of M&A deals as a strategy to reduce lead times. This is because companies adopt and reassess risks after the last tough years.

  • ESG

Environment, social, and governance (ESG) compliance will keep being in focus and a broader range of dealmakers is expected to continue incorporating ESG practices into their businesses and investment strategies.

  • Increased interest

Due to increased capital constraints and stricter lenders, the market will likely witness an increased interest in potential target company financial health and renewed interest in solvency and bankruptcy issues. Probably, more creative de-risking M&A strategies will occur.

  • Cash flow

Contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), and medical technology companies will probably be of high investment interest due to strong cash flow.

Predictions for the biopharma market

As per the biopharma sector in particular, the main forecasted trends are as follows:

  • Building consumers’ trust as a part of a strategy

According to Deloitte’s executives’ survey, more than 70% of biopharma executives state that improving consumers’ trust will be one of their top priorities. This is because it’s usually hard for the public to understand how research and development shape investments and financial returns and how it can influence the pricing, which can lead to reduction in the number of customers.

  • New regulations as market drivers

Most executives believe that expected regulatory changes such as the Inflation Reduction Act will greatly influence their organization’s development and investment strategies.

  • Growth in next-generation therapies

Deloitte’s executives’ survey demonstrates that most biopharma executives intend to make the development of next-gen therapies and other innovative products their top priority for the coming year. 

Predictions for the medtech market 

As per the medtech M&A (or biotech M&A) sector, the predictions for 2023 are as follows:

  • Technology companies in focus

The lines between medtech devices and consumer-targeted health care devices (like wearables) will be blurred, making the medtech sector seek to improve their digital, AI, and ML technologies.

  • Research and development (R&D) as a top priority

According to Deloitte’s executives’ survey, the development of innovative products is likely to be a top priority for surveyed medtech executives. Respondents also noted they’re likely to invest in companies that can bring digital innovations.

  • Demand for talented digital staff

Due to the recent huge layoffs in technological companies, medtech companies now will have a chance to recruit data scientists and other professionals with expertise in digital technologies, which will allow them to improve their digitalization strategies.

Key takeaways

Let’s summarize the main facts to know about healthcare M&A deals:

  1. Healthcare currently takes 5.5% of the total number of global M&A transactions among all industries. 
  2. Though experiencing a slight decline, the deal volume of mergers and acquisitions in the healthcare industry was still satisfying in 2022: the total value of M&A healthcare deals was $375.1 billion with megadeals included. 
  3. The main factors influencing the growth are Covid-19, longer life expectancy, population growth, innovation, and technology. 
  4. The main markets for M&A in healthcare were behavioral health, home care, long-term care, and physicians groups markets.
  5. Top 3 healthcare deals in 2022 were Advocate Aurora Health and Atrium Health, Amgen and Horizon Therapeutic, and Pfizer and Biohaven.
  6. Top healthcare trends for M&A to watch in 2023 include increased demand for AI, ML, and other digital technologies, reassessment of supply chains and development processes, ongoing attention to ESG principles, and search for creating de-risking M&A strategies.