Value of behavioral health mergers and acquisitions to decline 18% in H1 2024

The total value of behavioral care contracts decreased 18% in the first half of 2024 compared to 2023.

This is evident from PWC’s new half-year report on transactions in the healthcare sector. The report counted a total of 81 transactions in the behavioral therapy sector in the first half of the year, which corresponds to a volume decline of 2% compared to the previous year.

But it is not just the mental health sector that is affected by the downturn. The value of healthcare deals has fallen by 4% compared to last year. Nevertheless, the total value of healthcare deals has increased by 18%.

The report’s authors point out that new regulatory changes may make it more difficult to close deals this year.

“Increased regulatory scrutiny continues to be the top issue for healthcare dealmakers, with regulators focusing on healthcare costs as well as health equity and access to care,” the report’s authors wrote. “This is happening at the federal level in the form of Federal Trade Commission (FTC) antitrust proceedings and increasingly at the state level, including recent legislation introduced in California and other states that provides for greater scrutiny over transactions between private equity or hedge funds and healthcare entities or provider groups. These regulatory actions illustrate the increasing level of scrutiny that applies to private equity transactions in the healthcare sector. The potential impact on deal flow will be a focus for all investors, but especially sponsors, in the coming months.”

In 2023, antitrust regulators at the U.S. Department of Justice and the Federal Trade Commission withdrew their decades-old guidance on healthcare mergers, calling the policy “outdated.” Several industry insiders said it was a signal to the healthcare sector that stricter measures would follow.

The Biden administration is taking a proactive stance and has launched a number of new initiatives aimed at combating anti-competitive mergers and practices that could increase healthcare costs for patients.

Then, in March 2024, the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice (DOJ), and the U.S. Department of Health and Human Services launched a new investigation into controls on private equity and other corporate investments in the healthcare sector.

While the regulatory changes may cause investors to proceed with caution, the PWC report forecasts a strong second half of 2024.

“While the sector continues to face headwinds such as increased regulatory pressure, dealmakers have acclimated to the current interest rate environment and adapted to the associated decline in price-to-earnings multiples,” the report’s authors wrote. “These factors, combined with broader market tailwinds such as capital availability and the need for sponsors to facilitate exits and return capital to limited partners, should continue to drive deal activity in 2024.”