In 2024, the health care M&A marketplace remained dynamic with established industry players and disruptive new entrants engaging in a variety of transactions despite continuing inflation, fluctuating interest rates and a contentious presidential election creating significant uncertainty for providers and investors alike. As Hall Render’s Health Transactions team reflects on 2024 and looks ahead to 2025, we want to share a few thoughts and insights on the trends and considerations that are driving health care transactions.
2024: A Year in Review
In 2024, Hall Render’s dedicated Health Transactions team saw a steady stream of transactions across a broad range of valuations, structures and industries. These transactions were impacted by challenging economic markets and a seemingly unpredictable regulatory environment. Hall Render’s work on behalf of its hospital and health system clients illustrated these trends. For example:
- Hall Render helped local and state health systems in a broad array of geographic markets target acquisitions and strategic alignments in the low and middle markets to expand both their geographic scope and product/service offerings to better deliver comprehensive care to their patients.
- Hall Render advised a large state-wide health system as it expanded its geographic reach into new states and territories.
- Across the country, Hall Render worked with institutional providers as they pursued joint venture partnerships with ancillary care providers to leverage their expertise to efficiently and effectively provide services in a number of areas, including behavioral health, urgent care and imaging
- In response to the ongoing shift from inpatient to outpatient site of delivery, Hall Render represented health care entities of all sizes pursuing investments and strategic alignments in ambulatory surgery centers, office-based labs and outpatient clinics.
In the private equity space, the majority of 2024 was brimming with uncertainty for sponsors investing in health care due to macroeconomic factors causing protracted timelines to close and more broken deals than normal. The highly volatile presidential election cycle, rising interest rates, increased federal and state-level regulatory scrutiny and proposed legislation aimed at shaking up the reimbursement landscape were among the most prevalent obstacles in the way of the health care private equity sector surging back to the glory days of 2021. Health care-focused sponsors found themselves in the crosshairs of the Federal Trade Commission (“FTC”), the Department of Justice and state legislative bodies, creating a chilling effect on deal activity in the health care services sector. In response, many sponsors shifted their focus to health care IT, bio pharma, pharma services, med spas, home care, outpatient mental health services and other subsectors with lower regulatory or reimbursement risk.
2025: A Look Ahead
Hall Render’s Health Transactions team continues to monitor developments that may impact health care entities considering a wide array of potential transactions. As we push forward into 2025, here are a few we have our eyes on:
Federal Antitrust Enforcement Under the Trump Administration
Under the Biden administration, and FTC Chairwoman Lina Khan’s stewardship, federal antitrust enforcers engaged in aggressive, and often unpredictable, merger enforcement. Because antitrust enforcement in health care is largely a bipartisan issue, the FTC’s approach under incoming FTC Chairman Andrew Ferguson will likely remain robust, if more predictable, than the approach under Chairwoman Khan with the Commission reverting to more traditional, less novel theories of harm. This should allow parties contemplating health care transactions to better manage transaction expectations, costs and timelines associated with federal antitrust review and enforcement. Relatedly, as parties transact moving forward, it’s important to remember that, effective February 10, 2025, the new Hart Scott-Rodino premerger notification requirements take effect, requiring transacting parties to commit significantly more time and resources to meet the more onerous filing requirements.
Private Equity
As discussed above, a majority of 2024 was full of uncertainty for sponsors investing in health care due to macroeconomic factors; however, as sponsors look to 2025, the tide appears to be changing. The latter half of 2024 saw four things signaling a robust 2025: (i) the Federal Reserve dropped the federal funds rate three times between September and the end of the calendar year from 4.25% to 4.50%; (ii) Donald J. Trump won the presidential election; (iii) Governor Gavin Newsom vetoed Assembly Bill 3129; and (iv) unprecedented levels of committed, but unallocated capital earmarked for investment in health care. We anticipate greater M&A activity in 2025 by sponsors in the health care industry as scrutiny of private equity investment in health care is anticipated to decrease under the newly seated Republican administration. We expect to see continued interest in low-risk subsectors as well as a re-emergence of activity in health care services. Finally, don’t rule out more sponsors targeting health care retail as sponsors look to build on the lessons learned by Walgreens and CVS in that segment.
In Real Estate, Cash (and Credit) Is King
We expect capital markets will continue loosening but with continued scrutiny in light of last year’s mixed credit rating activity. Hospitals and systems with strong investment-grade credit will be poised to capitalize on attractive, lower-cost bond and credit tenant lease financing. Providers with weaker ratings will continue to find project financing more challenging with high-yield bonds, mortgage debt or developer-led financing solutions. Although the Federal Reserve is expected to lower rates again this year, we also expect those decisions will be tempered by other macroeconomic pressures.
Cross-Market Transactions
This past year reflected a growing trend in cross-market transactions, one which we expect to continue in the months ahead. With an increasing number of financially distressed hospitals in 2024, it’s presented prime opportunities for systems seeking to expand their footprint. As discussed herein, the federal antitrust enforcement environment and increased interest at the state level have chilled the appetite for further regional growth, calling systems to look beyond their backyard. The entry of new market participants is opening doors for physician groups and other ancillary service providers to think critically about their affiliations. Put differently, do they have their wagon hitched to a long-term growth partner with shared objectives?
Joint Ventures for Ancillary Services and Affiliation Strategies
Multi-state health systems are taking a critical look at their position in the market, and their ability to thrive with the presence of strong regional players. In the absence of a broader tertiary care network, these providers are called to sharpen their focus on who and what they want to be to the market. Over the past year, we’ve seen this result in an uptick in: (i) divestitures; and (ii) the development of joint ventures or other affiliation strategies with other regional participants. Joint venture strategies tend to offer a broader tertiary care network strategy and may open doors for more meaningful participation in narrow care networks. The lending of a brand has also proven impactful. We expect to continue to see an uptick in joint ventures to support ancillary care strategies and transform operations—particularly in the fields of behavioral health, ambulatory surgery centers, urgent care and lab, among others.
State-Level Review of Health Care Transactions
2024 saw a significant increase in the number of states contemplating, and implementing, health care transaction review laws. As referenced above, antitrust enforcement in health care is largely a bipartisan issue and this is reflected in the states that have enacted health care transaction review laws, with states ranging from Indiana to California committing to taking a closer look at health care transactions, particularly where those deals involve private equity investment. This trend is projected to continue in 2025 with states considering health care transaction laws requiring both notice and/or approval of health care transactions by state regulators. The impact these notice and approval laws may have on transactions will vary state-by-state.
If you have any questions or would like additional information about this topic, please contact one of the following members of Hall Render’s Health Transactions Practice Group:
- Colleen Powers at (317) 977-1471 or cpowers@hallrender.com;
- Danielle Bergner at (414) 721-0913 or dbergner@hallrender.com;
- John Bowen at (317) 429-3629 or jbowen@hallrender.com;
- Rubin Pusha III at (773) 550-6859 or rpusha@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
