Healthcare and Life Science Investors Forging Ahead with Deal Activity; Less than 10% Expect Volume Decline: KPMG Survey

30% of investors anticipate a drop in valuations; operational efficiency, joint ventures seen as investment priorities

Against the backdrop of an evolving regulatory landscape, heightened geopolitical tensions, and challenging economic environment, healthcare and life sciences (HCLS) investors remain undeterred in their M&A plans. Nearly two-thirds of investors plan to increase deal activity in the year ahead while a mere 9% anticipate a decline in deal volume, according to the 2024 KPMG Healthcare and Life Sciences Investment Outlook.

“As the heightened volatility we saw this past year continues into 2024, HCLS leaders will need to remain agile as they balance the challenges of today against their growth objectives of tomorrow,” said Kristin Pothier, U.S. Sector Leader for Life Sciences at KPMG. “The ascension of Generative AI and precision medicine has transformed the landscape placing a greater emphasis on digital health, value-based care, and patient-centricity driving investment and innovation.”

The 2024 KPMG Healthcare and Life Sciences Outlook features insights from a survey of 500 industry executives who provide their views on how changing market conditions and policy developments may impact investment decisions in 2024.

Key Survey Findings Include:

  • 61% of respondents plan to increase deal activity in 2024 while only 30% of respondents expect valuations to drop compared to nearly half the year prior.
  • When it comes to expectations regarding declining valuations, HCLS and private equity (PE)/venture capital (VC) respondents have different views. PE and VC investors expect valuations to drop more significantly, with 11% and 14% respectively expecting significant valuation decreases of more than 20%. Only 3% of HCLS respondents expect valuation decreases of 20% or greater.
  • Despite an uncertain rate environment, half of HCLS respondents surpassed their deal activity targets for 2023, as measured by deal volume.
  • While rising inflation and the rising cost of capital could impact companies’ ability to do M&A in 2024, a majority of investors said they believe that the impact will be modest.

Areas of Capital Deployment Focus for 2024

When it comes to deploying capital in 2024, improving operational efficiency, investing in joint ventures, and platform expansion or bolt-on acquisitions are forecasted to be key capital deployment areas for HCLS respondents.

“The smart optimism that has defined deal activity – companies’ need to expand their capabilities through strategic acquisitions – is likely to continue in 2024. However, smart optimism must also include smart diligence to mitigate execution risks, which are elevated in today’s business environment,” said Ash Shehata, U.S. Sector Leader for Healthcare at KPMG. “We see a convergence of factors laying the groundwork for a potentially stronger deal market in 2024. Notably, private equity sitting on high levels of dry powder and valuations stabilizing due to the presumption that health system volumes are under way as a result of a total volume recovery.”

Select Subsector Highlights:

  • In biopharma, artificial intelligence is not expected to be a major driver of deals with 43% of respondents saying it will account for less than 10% of deal activity.
  • In diagnostics, we expect a return of the small strategic tuck-in worldwide, cited by over 40% of respondents, and strategic partnerships, also around 40%. That marks a change from 2023 expectations, when 65% expected partnerships to predominate, compared with just 11% anticipating tuck-ins.
  • Among payors, 56% of respondents plan to use Generative AI solutions in the middle office while 49% plan to use it for clinical care management.
  • Hospitals and health systems identified healthcare IT and physician groups as their top investment priorities for 2024. Specifically, 47% of respondents ranked healthcare IT as their most or second-highest investment area, while 30% ranked physician groups as their most or second highest.

About KPMG LLP

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