Healthcare M&A Activity Remains Robust Despite Regulatory Challenges

Healthcare deal volumes continue to hold steady in 2025, despite regulatory uncertainties and extended investment hold periods, according to a recent report from PwC. While transaction numbers have decreased from the peak years of 2020-2022, they remain significantly higher than pre-pandemic levels, with a three-year running average of 1,375 deals.

Deal Activity by Sector

The healthcare services sector, including contract research organizations, ambulatory surgical centers, and home infusion care, led the pack with 454 deals totaling over $31 billion in the past 12 months. Physician groups followed closely with 413 transactions worth $11.3 billion, while labs and diagnostics saw 110 deals valued at $7.6 billion.

Behavioral health M&A activity has been particularly brisk, with deal flow jumping more than 35% year-over-year in Q1 2025. Autism-related transactions doubled, reaching their highest quarterly count since 2020. Investors are showing keen interest in autism, addiction, and outpatient psychiatric platforms amid surging demand for mental health services.

Regulatory Environment and Deal Structures

The Federal Trade Commission has raised Hart-Scott-Rodino filing thresholds to $126.4 million, exempting smaller deals from mandatory reporting. However, the agency continues to scrutinize potentially anticompetitive transactions, leading to extended timelines and increased due diligence costs.

To navigate the current market conditions, investors are adapting their strategies. High interest rates and longer hold periods have resulted in fewer controlling-interest buyouts. Instead, dealmakers are turning to minority recaps, preferred equity, and other flexible structures to bridge valuation gaps between buyers and sellers. Earn-outs are becoming increasingly popular as a means to mitigate risks associated with pending legislation and market uncertainties.

Emerging Trends and Future Outlook

Value-based care remains an attractive investment area, though investors are showing a preference for enablers with less risk exposure over full risk-bearing providers. The recent downturn in risk-based provider performance may create opportunistic investment opportunities in this space.

Artificial intelligence is gaining traction, with concentrated investments in revenue cycle management and diagnostics pilots. While these technologies show promise, PwC advises caution against overpaying for AI capabilities that have yet to prove their long-term value.

The retail healthcare landscape is in flux, with Walgreens' potential privatization raising questions about the future of retail health assets. Meanwhile, tech-oriented venture capital firms like General Catalyst are exploring digital turnarounds in acute care, as evidenced by their proposed buyout of Summa Health.

Despite challenges, PwC anticipates a healthy level of deal volumes through the second half of 2025, buoyed by high levels of dry powder in private equity. As the healthcare industry continues to evolve, dealmakers will need to remain agile, navigating regulatory hurdles while capitalizing on emerging opportunities in behavioral health, value-based care, and digital transformation.