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Healthcare Services Report

Market Map: Healthcare services are not immune to broader economic trends

The healthcare services sector still had a robust amount of PE deal activity in 2022, but it wasn’t immune to broader economic uncertainty.

The healthcare services sector saw relatively robust PE deal activity in 2022, but it wasn’t immune to the broader economic uncertainty and increased capital costs.

Quarterly deal activity in 2022, while in line with pre-pandemic trends, has declined for four consecutive quarters, according to PitchBook’s Q4 2022 Healthcare Services Report. The number of deals completed in Q4 2022 was less than a third of 2021’s average quarterly deal count.

With job openings increasing quickly, and hiring numbers remaining stable, labor costs are going up in the healthcare services industry, providing another reason for a decline in dealmaking.

Still, there is potential in 2023 for growth in the latter half of the year, according to PitchBook analyst Rebecca Springer. One of the segments that could lead this charge—and one partly responsible for the slowdown in 2022—is skilled care and behavioral health.

That segment has strong market demand as well as the potential to reduce care costs, making it an attractive area for dealmaking, according to Springer. However, staffing shortages have proven difficult to surmount and kept companies in the segment from growing in 2022 as much as they could have.

The market map below outlines the healthcare services PE ecosystem in the United States and Canada. Explore the skilled care and behavioral health segment by clicking on the colored tile.

To go deeper, read our Healthcare Services report. PitchBook subscribers can also explore the full market map with details on nearly 4,000 companies.

Spotlight: Skilled care and behavioral health

  • ABA and pediatric therapy: These companies deal with therapy used to treat various developmental disorders, typically in treating autism in children.
  • Home health and hospice: This subsegment focuses on hospice care and home health for the elderly, those on Medicaid and children.
  • IDD Care: Companies that provide medical and other support services for people with developmental disabilities. Such services include, but are not limited to, home care, group homes and day care.
  • Infusion: Providers that administer intravenous or subcutaneous drugs or work with specialty pharmacies that provide such services.
  • Mental health and SUD treatment: This subsegment includes traditional talk therapy and inpatient psychiatric hospitals as well as everything in between.
  • Skilled nursing: Nursing homes and other facilities that offer both short-term and long-term care for adults as well as those recovering or rehabilitating from an injury or illness.

Trends: Deals and exits

 

In Q4 2022, there were an estimated 158 deals, a little more than a 26% decline from the previous quarter and a roughly 56% decrease year-over-year. There were an estimated 863 deals completed in all of 2022, the second-highest year since 2017.

Physical practice management companies completed the most deals in Q4 2022 with 62 confirmed deals, while skilled care and behavioral health companies came in second with 29 completed deals.

Of the 752 confirmed deals in 2022, 595 were add-ons, making up the largest share, according to PitchBook data. This was roughly the same share as it was in 2021, while growth deals made up a larger share of PE deals in this sector in 2022, going from 9.7% to 11.5% of all deals.

Despite the decline in dealmaking, there were some notable deals in Q4 2022, such as applied behavior analysis services provider ABA Connect‘s acquisition by MBF Healthcare Partners via a leveraged buyout, as well as Lee Equity Partners and Coastwood Senior Housing Partners buying out Discovery Senior Living.

 

There were 54 exits in all of 2022, less than half of the exit count from the year before but more in line with activity from 2017 through 2020.

This decrease was felt most harshly in buyouts, which declined 47.6% from 63 exits in 2021 to just 33 in 2022.

Exits in the last quarter of 2022 included Novo Holdings’ acquisition of home infusion services provider KabaFusion and primary care-focused physician group operator Excelsior Integrated Medical Group‘s acquisition by Rendr via a leveraged buyout.

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