Health care mergers and acquisitions slow in Q1 due to inflation, interest rates, global uncertainty

After a record 2021, health care mergers and acquisitions slowed down in the first quarter of 2022 due to a number of factors.

There were 427 total transactions in the first three months of 2022, down 34% from the fourth quarter of 2021 and a third below the quarterly average of 2021, according to the report “Deal Making Comes Back to Earth,” by consulting firm KPMG.

Private equity deal volume of the first quarter declined by 50%. Funds slowed their pursuit of hospitals and health care systems by 61%. Interest in physicians’ practices dropped 24% from the fourth quarter of 2021, while health care IT and analytics deals rose 4%.

Strategic health care deal volume decreased by 13%, from 277 transactions in the fourth quarter of 2021 to 241 in the first quarter this year. Behavioral health posted the only volume growth, up 17%, according to KPMG.

“There are many reasons for the slowdown,” KPMG Prinicipal Ross Nelson, MD, MBA, said in the report.

Some buyers rushed to complete transactions in 2021 before anticipated changes in tax laws. In early 2022, the COVID-19 omicron variant surge disrupted business.

The Federal Reserve began hiking interest rates and Russia’s invasion of Ukraine “created massive uncertainty across the global economy,” Nelson wrote.

Inflation is expected to continue through the end of the year as energy and food prices rise due to supply chain disruptions, the report said.

Those factors have made investors more cautious, taking their time on deals in 2022, Nelson said.

“In short, 2022 is not likely to yield the extraordinary deal volumes, or values, of 2021,” the report said.

Hospital business

A confluence of the same trends “is putting intense cost pressures on nearly every hospital and health system,” the report said. KPMG predicted a potential spike in insolvencies if hospitals cannot meet debt service requirements.

As pandemic conditions subside, patients have not returned for elective procedures. Federal aid to hospitals is waning and low interest rates “may soon be a distant memory.”

“Add increasing costs for labor and supplies, and the financial health of many hospital and health systems my come into question,” the report said.

Lenders may be willing to take an “amend and extend” approach to terms of loans for hospitals.

Telehealth

The report noted in the last year, “telehealth has attracted new investments from both strategic and (private equity) groups.”

In 2021, Walmart purchased MeMD to compete with CVS and Walgreens, which both have in-store clinics and telehealth offerings.

In February, Amazon announced its partnership with virtual care company Teladoc to launch telehealth through devices. In the first quarter of 2022, health insurer Cigna’s Evernorth acquired MDLive telehealth service.