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Health care bankers optimistic about 2024

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Illustration: Gabriella Turrisi/Axios

Encouraged by strong investor interest in sub-sectors like pharma services, health care bankers are optimistic that M&A will pick up in the latter half of 2024.

Why it matters: After a lackluster 2023 and a tepid Q1, valuation expectations are settling and dealmakers are ready to put pen to paper.

  • Bankers spoke about the 2024 M&A outlook under Chatham House rules at McDermott Will & Emery's Healthcare Private Equity conference in Miami this month.

The big picture: "I think we all expect by summer that the markets can be in good shape," says a managing director at a middle-market firm.

  • "The depth of lending just in the last 90 days is increased dramatically and that's going to be a pretty good tailwind going forward," he adds.

Reality check: Panelists acknowledged the continual delay in pickup of market activity.

  • "We've always done a bit of an optimistic punch saying, 'It'll be the next quarter, it'll be the next quarter,'" a second middle-market managing director says.
  • "That said, there are real kind of green shoots in the market," he adds, noting he's optimistic for Q3.

Zoom in: While pharma services continue to draw strong PE interest, shifting dynamics have cooled previously white-hot investor interest in physician practice management businesses, panelists said.

  • A fundamental change is the "lack of growth and control from reimbursement," says a third middle-market managing director.
  • "In this environment where wage inflation has been so prevalent across the board, you've just seen significant margin compression, and I think that's one of the big things that has caused trouble," he adds.

The bottom line: Private equity's bread and butter — a buy-and-build strategy— "is not what it used to be," a managing director at a boutique firm says.

  • "Now you have to balance that with organic growth," he adds.
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