According to a PitchBook analysis published Monday, private equity firms announced or closed an estimated 863 deals with healthcare organizations in 2022, marking "a really good year for healthcare services dealmaking," Carolina Hudson writes for Modern Healthcare. 

2022 was a 'really good year' for private equity investments

In 2022, private equity firms announced or closed an estimated 863 healthcare services deals. While this represents a decline of almost 15% from 2021, it marks an increase of more than 18% from 2020.

To estimate the annual transactions, PitchBook analyzed recorded deals through the third quarter of 2022 and used historical data to estimate the number of deals for the fourth quarter.

The number of investments slowed throughout the year as "challenging macroeconomic conditions and higher staffing costs" strained the industry, Hudson writes. In addition, competition for private capital increased as market lenders became less risk averse, according to Rebecca Springer, senior healthcare analyst at PitchBook. Smaller deals were often more successful.

During the fourth quarter, PitchBook estimated that there were 158 deals, down from 214 transactions in the third quarter. These deals covered a wide range of healthcare services, including dental, home health, and multispecialty care.

However, PitchBook also noted that the number of deals is expected to decline further during the first half of 2023. Macroeconomic conditions will also significantly influence how the second half of this year unfolds.

"2022, by historical standards, is a really good year for healthcare services dealmaking and what we're seeing in Q4 is sort of a standard, pre-pandemic level of deal activity," said Springer.

Private equity investments increase across the healthcare industry

With so many investors looking for ways to expand and disrupt the healthcare industry, private equity investment is becoming even more prevalent. While these deals — and their cost-cutting measures — have drawn criticism for their potentially negative impacts on patient care, investors are still taking advantage of opportunities throughout the sector.

"Private equity investors continue to see big potential in primary care, particularly for older patients and for Medicare Advantage-focused platforms," Hudson writes. However, the number of primary care transactions decreased to an estimated 14 in 2022, compared with 25 in 2021 and 17 in 2020.

According to Springer, the decrease can be attributed to market readjustments associated with the COVID-19 pandemic. However, she said there are still deals available to prospective investors.

"There's a lot of chess being played in primary care," Springer said. "Right now, there are a lot of groups that are trying to establish as big a footprint as they can quickly to get ahead of the value-based care trend that we're all moving toward."

Meanwhile, an increasing number of "payviders" like UnitedHealth Group* and Humana, as well as retailers like CVS Health and Walmart, are making investments in clinical operations.

"Adding to the competition are value-based care enablement companies that provide software and management support to providers adopting value-based contracts and taking on upside risk," Hudson writes. "More private equity firms are exploring these partnerships as a less capital-intensive option that could culminate in buyouts." (Hudson, Modern Healthcare, 2/6)

*Advisory Board is a subsidiary of Optum, a division of UnitedHealth Group. All Advisory Board research, expert perspectives, and recommendations remain independent.