The M+A market continued to struggle to rebound this year after a slow 2023, undoubtedly due in part to continuing high interest rates and the pending election. Straightforward deals that, in another year, would have successfully closed did not, while more complex deals were met with various roadblocks. However, with interest rates slowly coming down and the election results in, all signs are pointing to a rosier outlook in 2025 for M+A activity. VERTESS is excited to share its annual year-end review and future outlook for each healthcare vertical in which we operate. We are encouraged going into the new year and are looking forward to what 2025 has to offer!
If you'd like to discuss your healthcare market in greater detail with any of our Managing Directors, we have provided contact information for each of them at the conclusion of their comments.
Bradley Smith, Managing Director/Partner
Durable Medical Equipment / Home Health / Medical Device Manufacturing
Durable Medical Equipment (DME)
Valuations in DME this past year have unfortunately continued their downward trend since the highs of 2021 and 2022, albeit at a much slower pace. As a result, there have been fewer transactions than in a normal year. There have been a few exceptions to this, namely very niche and large providers bucking this trend i.e. Nationwide and Rotech. On the positive side, private equity as a whole has shown renewed interest in the DME market with favorable modeling on the industry at large. In 2025 I look to see more PE and PE-backed players to increase acquisition efforts and see a modest increase in valuations as well as the number of transactions. In fact, we were already starting to see this uptick in Q4.
Medical Device
Valuations in the broader Med Device market have remained stable despite a slowing in transaction activity in 2024. Largely, the transactions completed this past year have been strategic, with a continued decrease in private equity platforms. I am looking for this trend to change based on the favorable broader market conditions of lower interest rates and a surplus of dry powder. This will lead to increased competition for assets and a modest increase in valuations.
In 2024, M+A activity in the SUD and mental health sectors grew by 6%, with 80% of deals focused on follow-on acquisitions. This highlights buyers’ preference for scaling existing platforms and lowering their average entry multiples, signaling a cautious yet optimistic market.
In 2025, this trend is expected to continue, bolstered by stabilized interest rates and operational costs. Capital will increasingly target providers offering a continuum of care, aligning with the industry's shift toward value-based models that prioritize breaking down silos and creating seamless, single-point entry systems. New platform acquisitions are likely to drive further follow-on deals, providing early-stage platforms with favorable opportunities for sellers. Providers demonstrating integrated care models, operational efficiency, strong outcomes, and robust telehealth offerings will remain highly attractive, positioning them to secure premium valuations in an active, competitive market.
The pharmacy industry faced a multitude of challenges in 2024. New drug approvals, innovative formulations, and revised pricing regulations reshaped the landscape. Drug affordability took center stage, with initiatives like affordable insulin and biosimilars gaining prominence. Pharmacy Benefit Managers (PBMs) faced increased scrutiny from employers and consumers demanding transparency in their practices. PBM actions inadvertently drove patients away from independent pharmacies.
The retail pharmacy sector experienced significant disruption due to years of mergers and acquisitions, rapid expansion, and the entry of major players like Amazon and GoodRx. The 340B Drug Pricing Program underwent dramatic changes, particularly impacting hospital-based pharmacies. In the specialty pharmacy realm, a shift from brand-name drugs to biosimilars and increased scrutiny of rebate programs aimed to reduce costs. Additionally, hospital-owned specialty pharmacies emerged as a growing trend. Workforce shortages further compounded the industry's challenges, affecting staffing levels and operational efficiency. The cyberattack on Change Healthcare had a significant impact, exacerbating industry-wide issues. Declining customer satisfaction, rising costs, and increased PBM scrutiny added to the complexities. As the industry continues to evolve, digital technologies play a crucial role in consumer interactions with PBMs and pharmacists. In 2025, M+A activity is expected to remain high, especially in the compounding, specialty, home infusion, and nuclear pharmacy sectors. The retail pharmacy sector is likely to face continued challenges in the coming year.
Intellectual/Developmental Disability / Traumatic Brain Injuries / Behavioral Health
Throughout 2024 we continued to see good deal flow and strong valuations in small and mid-sized behavioral health deals. Business owners who chose to sell in 2024 are very pleased with their results and the processes we ran. Our expectations are that the business environment in 2025 will likely continue to remain strong as this space is far more stable and predictable than other lines of business.
The medtech and healthcare IT sectors have seen significant momentum in M+A activity and private equity interest, particularly as innovation continues to reshape the landscape. Medtech has focused on scaling promising technologies, such as surgical robotics and brain-computer interfaces, which are drawing substantial funding and strategic interest. Healthcare IT, on the other hand, remains a resilient and attractive area for PE sponsors, driven by consolidation and demand for solutions like chronic disease management, digital therapeutics, and real-time analytics platforms. Investors are capitalizing on these opportunities, reflecting a strong appetite for scalable, high-growth assets in these markets for 2025.
Private equity activity in healthcare services has been marked by a cautious yet optimistic approach over the past year. Deal flow slowed slightly in 2024, as buyers and sellers navigated market timing challenges and economic uncertainties. However, interest remains high in sectors like infusion services, medspa, and outpatient mental health, although the scarcity of platform-scale assets poses challenges. Specialty physician groups have become a contrarian play amid PPM dislocation, though strategic exits are beginning to thaw the market. Infusion services have stood out as a top-performing category, and with increasing optimism, 2025 is expected to bring a modest recovery in deal activity across healthcare services, underpinned by strategic acquisitions and the gradual stabilization of macroeconomic factors.
As we approach the end of 2024, we’ve observed a slowdown in closed transactions within the healthcare M+A landscape compared to the previous year. This deceleration can be attributed to cautious market conditions and regulatory complexities. However, the outlook for 2025 remains positive, with expectations for a resurgence in deal activity. Companies are increasingly recognizing the importance of strategic acquisitions to enhance service offerings and improve operational efficiencies. With a renewed focus on partnerships that leverage data analytics and innovative technologies, we anticipate a wave of transactions aimed at navigating the evolving healthcare landscape. Investors are poised to capitalize on these opportunities, and as market conditions stabilize, we expect to see more deals successfully closing in the coming year.
Durable Medical Equipment / Home Medical Equipment
Overall, 2024 saw a slowdown in deals for DME; specifically in the areas of Medical Supply and CRT. While the category did slow, some therapies and product-specific areas did experience normal to increased interest and valuations. Clinical therapies such as Wound Care, Urology, and Diabetes CGM saw strong interest and acquisitiveness from both large strategic buyers and financial buyers. Overall however, these categories have seen tremendous consolidation during the past decade, so much of the slowdown comes from low inventory of companies as well as larger buyers settling on the many transactions completed during record times of 2021 and 2022. Other therapies such as Incontinence, Enteral, and Ostomy did not attract the level of interest as in years past. Much of the interest, however, was very targeted toward specific geographies, payers, and companies with value-based programs that brought higher margins to these commodity-type “lower margin” therapies. Similarly in CRT, consolidation over the past decade has hit this category hard and interest from the larger strategics seems to have slowed down.
With the Centers for Medicare & Medicaid Services and private payors increasingly focused on reducing healthcare costs and improving patient outcomes, home health agencies are stepping up to play a bigger role in the overall care landscape. We saw the nationwide rollout of home health value-based purchasing gain further traction in 2024 and build momentum heading into 2025. This model rewards participating home health agencies for delivering high-quality care and enhancing patient outcomes.
Many agencies are maximizing these reimbursement opportunities by leveraging new tools for measuring and improving outcomes. Thanks to advancements in data analytics and digital platforms, home health providers can more easily track patient progress and report essential metrics. These insights allow them to refine their care strategies, increasing their chances of higher reimbursements. As home health agencies become even more integral to value-based care, buyers are eager to get involved early and capitalize on the sector's growth.
Smaller agencies or those with fewer resources have faced challenges with the financial and operational investments required to meet new value-based reporting standards. This is creating an opening for investors and an opportunity for home health agencies. Agencies open to a financial or strategic partnership can gain access to the capital they need to make these investments and remain competitive.
Ambulatory Surgery Centers / Hospitals / Physician Practices
2024 served as a litmus test for healthcare companies as we move to a post-COVID-19 norm. As a result, 2024 defaulted to safe acquisitions to mitigate risk for buyers. This was primarily observed in companies that were affected both positively and negatively by the epidemic. Among these companies, Urgent Care, laboratory companies, revenue cycle management (RCM), and Ambulatory Surgery Centers were most affected. The good news for 2025 is we can now see acquisitions trending through platform consolidation and buyers entering the market more confident and willing to take more risk. The indicator for this change is a heavy interest in strategic buyers looking to add to existing platforms and enhance their portfolio with add-ons, whereas these actions were stagnant in 2024. There is increased interest in RCM companies and Urgent Care centers that were considered a higher risk during COVID due to the risk of future non-reoccurring revenue. Ambulatory Surgery Center management companies are looking to grow exponentially in 2025. This heightened interest can be validated by the increase in their 2024 acquisition budgets. The new target audience for these specific companies will be private equity groups who are still cautious about the risk and acquiring funding while staying competitive with bids. It will be the job of intermediary M+A companies to provide a narrative for sellside opportunities by utilizing 2024 data to justify a meaningful multiple for their client and minimize risk in a now more stable market.
Market valuations for healthcare companies/practices sold in 2024 included many above-average offering prices. We received more outlier offers in 2024 than we’ve seen since pre-COVID. That’s the good news. The not-so-good news was that M+A transactions in 2024 took much longer than usual to complete. This may be the result of a continued flight to quality that we’ve experienced since post-COVID. The good news is that most healthcare companies have long since gotten past the ill effects of COVID-19 in their financial performance.
We expect 2025 to be much more robust than 2024 regarding M+A transactions. We sense a greater level of optimism among market participants. The tailwinds impacting M+A in 2025 are based on improving companies’ financial performance, lower interest rates, aging baby boomers/business owners seeking to retire, increased liquidity of investors/buyers, and lower inflation. We further expect a higher-than-normal amount of outlier offers for healthcare companies in 2025.
Want to stay current with trends in the medical/healthcare space as well as receive expert advice of veteran medical entrepreneurs?
SUBSCRIBE TO OUR BI-WEEKLY NEWSLETTER VERTESSPRESS
For over 10 years, we've been teaching ways you can improve the value of your healthcare company, focusing on informing you about mergers + acquisitions, including M+A trends in the healthcare market.
