Despite an uncertain regulatory environment and higher hold period for investments in healthcare, deal volumes remain steady.
So says a new report from PwC. In addition to regulatory scrutiny, persisting valuation gaps between buyers and sellers have contributed to hesitation in the market. Nonetheless, deals continue to pace significantly ahead of pre-COVID levels—though are down from the boom years of 2020 to 2022. The three-year running average of the number of healthcare transactions weighs in at 1,375.
The subsector leading with the most deals (454) in the last 12 months was a group of services that includes contract research organizations, ambulatory surgical centers, home infusion care and medical office buildings. These deals represented more than $31 billion in value. In second place were physician groups (413 deals totaling $11.3 billion) followed by labs and diagnostics (110 deals worth $7.6 billion).
High interest rates and drawn-out holds have led to fewer controlling-interest buyouts. To bridge valuation gaps, investors are instead relying on minority recaps, preferred equity and other flexible structures. Pending legislation like the reconciliation bill are “clouding investor sentiment,” according to the report, and will ultimately affect valuations. One way to mitigate this risk is to use earn-outs, the report said: a pricing structure in M&A where the sellers get paid partly based on business performance after the sale. Dealmakers should also watch for distressed assets if Medicaid eligibility restrictions are passed.
On the regulatory side, the Federal Trade Commission lifted Hart-Scott-Rodino filing thresholds to $126.4 million, meaning any deals smaller than this do not need to be reported to the agency. Still, the agency continues to challenge any deals it sees as anticompetitive, extending timelines and diligence costs. The report cautioned of closer scrutiny of vertical integration and site-neutral reimbursement proposals through 2025.
Payers’ medical costs, meanwhile, are rising above projections. It isn’t clear whether utilization recovery in the post-COVID era has peaked. At the same time, pharmacy benefit managers and vertically integrated payers face heavy scrutiny from regulators and Congress. This could drive divestments in the pharmacy sector if proposed restrictions come to pass.
Value-based care remains “attractive,” per the report, but investors favor less risk over full risk-bearing providers. Instead, they currently prefer enablers without the full exposure. The recent downturn in risk-based provider performance may drive “opportunistic investment opportunities.”
Artificial intelligence pilots in revenue cycle and diagnostics are seeing concentrated investments and deserve attention, the report suggested. While investors should be ready for the use cases that prove to be useful, they should also be wary of overpaying for the tech.
Subsectors in healthcare that remain active include behavioral health and revenue cycle management. Behavioral health M&A is “brisk amid surging demand.” In particular, investors are interested in autism, addiction and outpatient psych platforms. In the first quarter of 2025, deal flow in behavioral health jumped more than 35% year over year. Autism deals doubled to the highest quarterly count since 2020.
What remains unclear is how the retail healthcare space will shake out. With Walgreens looking to go private, will it end up being a one-off megadeal, or will others similarly divest from retail healthcare assets?
Further, General Catalyst’s proposed buyout of the health system Summa Health indicates that tech-oriented venture capital firms are looking for digital turnarounds. More VC interest in acute care assets could also be possible. Meanwhile, private equity is seeing high amounts of dry powder, with capital raised but not yet invested. Thus, PwC anticipates a healthy level of deal volumes through the second half of 2025.