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Healthcare PE investors proceed with caution in 2024

Healthcare-related PE deal value fell over 60% in 2023. And PitchBook analysts expect more declines in the new year.

Healthcare-focused private equity managers were less active in 2023 than years prior, and they’re likely to maintain caution in 2024.

From its 2021 peak to the end of 2023, total healthcare-related PE deal value fell 60.4%—reaching its lowest point since 2016, according to PitchBook’s 2023 Annual US PE Breakdown. As the industry moves into the new year, analysts anticipate a further decline.

Healthcare deals as a share of global PE deal count peaked at 13.7% in 2020, but, by the end of 2023, that figure fell to 10.8%.

In December, PitchBook analysts predicted that healthcare will decrease as a share of global PE and VC deal count in 2024, a product of high interest rates impacting the cost of leverage and inhibiting the types of deals favored by these investor types.


While analysts expect PE healthcare managers to continue to deploy capital into current portfolio companies and into lower-middle-market acquisitions, they also note that the nature of PE healthcare investing is changing.

The number of traditional physician practice management roll-ups—where PE managers combine multiple portfolio companies—declined in 2023.

Following the Federal Reserve’s interest rate hike campaign, it became more challenging for PE firms to pile on debt to contribute to the inorganic growth of their platforms. Add-ons, which typically require debt financing and are the bread-and-butter strategy of PE healthcare players, grew less and less feasible.

The shift away from add-ons is also, in part, a product of labor cost inflation.

Labor shortages across healthcare sectors drove up salaries and wages during the onslaught of the COVID-19 pandemic. In its aftermath, the industry remains vulnerable to these pressures.

Marty Bonick, CEO of Ardent Health Services, said Tuesday at JP Morgan’s healthcare conference that labor costs were a real inflation cost baked into the industry. “We might see the cost of gas and milk and eggs and cheese go down, and supply chain issues have abated across the country, but once you give somebody a raise, that inflation is baked in; you’re not getting that back.”


Still, the industry has identified specific opportunities. In September, a consortium of private equity firms bought biopharmaceutical company Syneos Health for $7.1 billion, and in the first days of 2024, middle-market PE firm Peak Rock Capital agreed to sell its stake in infusible drug specialist Paragon Healthcare.

PitchBook analysts expect the industry will continue to invest in pharmatech, capitalizing on pharma’s mounting focus on biologics, including antibody and protein drugs and obesity treatments.

Heather West contributed reporting.

Featured image by David Sacks/Getty Images

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