Navigating the Global Healthcare Investment Landscape: Trends, Challenges and Opportunities

Healthcare companies today are increasingly focusing on technological innovations to stay competitive, leveraging artificial intelligence (AI) and other digital solutions to transform areas like drug research, diagnostics, medical training and gene therapy. Scientific advancements are slowly reshaping the industry landscape, strengthening the case for healthcare investments from established players and new entrants in the market.

As healthcare dealmakers grow keener to finalize deals heading into 2025, recent stronger-than-expected U.S. GDP figures and The Federal Reserve cutting interest rates in September by a half percentage point, or 50 basis points, are fostering a more optimistic global outlook for healthcare mergers and acquisitions (M&A) and private equity (PE) dealmaking.

Stabilization of healthcare deal activity

According to research from SS&C Intralinks’ Global M&A and PE Trends in Healthcare report, produced using PitchBook data, healthcare investing showed signs of stabilization in the first half of 2024, after a significant downturn last year. Global deal trends reflected pre-pandemic conditions, gaining momentum toward the end of the year and putting 2024 on track to establish a new, steady pace of financing. The trend toward larger M&A transaction values remained strong despite rising costs of debt financing and higher interest rates, with the median deal size reaching a historic high of USD 571.9 million year-to-date (YTD) — albeit across fewer deals. Add-ons continued to be vital for driving deal count growth, as a faltering initial public offering (IPO) market made alternatives an increasingly more appealing option.

Public-to-private transactions also saw a resurgence, allowing PE firms to capitalize on undervalued public companies and implement long-term strategies that focus on building value. The trend reflects a growing confidence in the ability of private equity to navigate the complexities of the healthcare landscape, particularly in a challenging economic environment.

As the PE presence in healthcare grows, corporate divestitures have also surged, reaching near-record levels, with 32 deals, mirroring the levels seen in 2021. Shedding underperforming assets allowed firms to optimize portfolios and make room for new, potentially more lucrative acquisitions.

A spotlight on healthcare fundraising

Healthcare fundraising defied broader trends in 2023, with fund managers successfully raising USD 27.1 billion across 28 funds, marking an 88.2 percent year-over-year (YOY) increase. This surge in capital was achieved despite a shrinking pool of funds, driven by limited partners (LPs) entrusting their resources to larger, more experienced managers to enhance their chances of returns.

With a promising exit environment and a record level of dry powder to deploy, healthcare startups focusing on digital health, wearable medical devices, AI-driven research platforms and virtual reality could soon see a significant influx of funding. The trend didn't lose steam as it entered H1 of 2024, with fundraising efforts bringing in USD 4.9 billion across 12 funds, showcasing a shift towards fewer but more substantial funds.

Looking ahead

Despite the promising landscape for healthcare deal activity, investors must remain vigilant about potential headwinds, such as regulatory pressures, labor shortages and geopolitical challenges that could hinder performance. One effective strategy to navigate these issues is the strategic acquisition of smaller firms, which can potentially help mitigate regulatory scrutiny and enhance overall portfolio value.

As the rise of AI and digital solutions continue to revolutionize traditional processes, and the industry embraces technological advancements and incorporates foundational AI models, private equity firms and strategic buyers will find an increasing number of acquisition opportunities that can position them at the forefront of transforming the healthcare landscape.

To get a detailed analysis of global healthcare investing trends, by sector and region, read SS&C Intralinks’ Global M&A and PE Trends in Healthcare report.