After a Dim 2023, Indicators of Light Ahead for Healthcare M&A
According to research from SPS by Bain & Co., healthcare M&A was already declining from heady levels of 1,534 deals in 2021 before the Federal Reserve started increasing interest rates to counter inflation last year. The total number of healthcare deals in 2023 was 1,060, a 15% decline from 2022, albeit only a slight decrease from pre-pandemic deal volume in the sector.
Stranded Assets or Diamonds in the Rough?
Diminishing deal flow requires firms to innovate in their sourcing approach. A recent SPS analysis concluded that PE portfolio companies are being held for an above-average period – which may reveal a treasure trove of attractive hidden deals for scrappier sponsors.
Q4 2023 Mezzanine Market Perspective
In Q3 2023, 82 deals including mezzanine debt closed, a 13% decrease from the 94 mezzanine deals closed in Q2 2023. Mezzanine activity through the first three quarters of the year increased approximately 9% YoY from 268 deals in 2022, to 293 deals in 2023. Despite the increase in mezzanine deal activity, private equity deal volume for the same time period decreased 18% from 4,487 deals in 2022, to 3,679 deals in 2023. Out of the 82 mezzanine deals that closed in Q3 2023, 33 deals were buyouts, 27 were minority financings, and 22 were sponsor-backed add-ons. The most common industries in total M&A activity for the quarter were Technology, Industrials, Business Services, and Healthcare, respectively.
Hold periods indicate a surge of deal flow ahead
The PE market has regained some footing compared to the first half of 2023. With GPs’ new year resolutions to deploy large sums of capital accumulated during recent fundraising cycles, funds are now tasked to find good deals and create value for their LPs.
