Global Healthcare Private Equity Report

Corporate M&A: Pressing “Pause”

Corporations took a hiatus from healthcare mergers and acquisitions, but excess cash and the need to buy growth should lead to a rebound in activity.

Jeff Haxer, Dale Stafford, Ben Siegal, Nirad Jain, Kara Murphy, Franz-Robert Klingan, Dmitry Podpolny, Alex Boulton, and Vikram Kapur

First published on апреля 10, 2023
min read


At a Glance Corporate healthcare deal activity fell in 2022 as companies pressed “pause” on mergers and acquisitions in the face of uncertainty in the debt and equity markets. Deal value increased for the provider sector, but pharma, payer, and medtech all saw total deal value fall. Given the cash on hand for many strategics, the allure of buying growth, and the looming patent cliff in biopharma, strong corporate deal activity is likely to recover relatively soon, particularly in pharma and medtech. Looking ahead, cross-sector competition for certain types of assets, ongoing portfolio management by corporate players, and increased regulatory scrutiny will impact private equity deal activity. This article is part of Bain's 2023 Global Healthcare Private Equity and M&A Report. EXPLORE THE REPORT Corporate healthcare mergers and acquisitions (M&A) deal volume dropped in 2022 and average deal size fell, resulting in lower total deal value than in 2021. This state was not unique to healthcare, as corporations across industries took a wait-and-see approach to M&A given uncertainties in the debt and equity markets. Nevertheless, the fundamentals of healthcare M&A remain strong, and 2022 featured multiple highlights. The provider sector showed resilience, with activity partially attributable to the availability of smaller assets allowing for multiple deal theses relative to other healthcare sectors. Additionally, two megadeals in the life sciences sector may point to more robust deal activity to come: Johnson & Johnson’s nearly $17 billion acquisition of Abiomed in November and Amgen’s $28 billion acquisition of Horizon in December. For more details on sector trends, see the chapter “M&A in Healthcare and Life Sciences: Why the Industry’s Wait-and-See Days Will End” from our M&A Report 2023. Given the large amount of cash on hand and the growth M&A can provide, we think strong corporate deal activity will return relatively soon. This is particularly true for pharma, where there is the looming issue of patent expiry. Globally, the top 15 drugs coming off patent by 2030 generated more than $100 billion in sales in 2020. Additionally, cash balances are high, with the top 25 pharma, medtech, and payer companies all having at least 15% of their past 12 months’ revenues on hand in the form of cash. Several factors related to corporate M&A activity will impact the healthcare private equity buyout landscape. Cross-sector competition The past decade has seen a growing field of interest in payer and provider assets. This trend is continuing and perhaps accelerating as the line between retail, wellness, and healthcare continues to blur. Financial sponsors, large corporate healthcare businesses, and newer strategic disrupters may find themselves competing head-to-head for market-leading assets at the vanguard of healthcare. Take Signify Health, for example. Before CVS announced the $8 billion acquisition in September, Bloomberg reported that Amazon, UnitedHealth Group, and Madison Dearborn-backed Option Care Health were all considering offers. Given increased competition, private equity sponsors may want to carefully consider deals as the valuations applied by strategic competitors to deals could be difficult to match. Many deals that are considered large for private equity funds are small by corporate acquisition standards, and corporate bidders often have creative deal theses that layer synergies or long-term disruptive aspirations into their valuations. Portfolio realignment In 2022, several major healthcare companies reconsidered their portfolios as they focused on their core offering. This included both carve-outs that are directly addressable to private equity investors and spin-offs, which come with a different set of variables. Some carve-outs came from healthcare-focused companies that had standalone assets that participated in markets outside their core strategic initiatives. Centene announced last year that it planned to exit the pharmacy benefits management and pharmacy space as part of its ongoing strategic review of its business. As a part of that review, Centene carved out specialty pharmacy PANTHERx, which was acquired by Nautic Partners, Vistria Group, and General Atlantic for $1.4 billion. In other cases, companies with broad technology platforms, including IBM and Informa, carved out healthcare-specific assets. Portfolio realignment is likely to continue to present opportunities for private equity carve-outs. Meanwhile, the medtech sector saw a particularly busy year for spin-off and disposal announcements: 3M, GE, Johnson & Johnson, and Medtronic all signaled plans to realign or exit their medtech divisions—or parts of their medtech divisions—in 2023, with GE completing a spin-off of its healthcare business in early January of 2023. Some of the newly created spin-offs may be small enough for a take-private play, and coverage from Bloomberg suggests private equity funds are already evaluating the two companies Medtronic plans to spin off. Depending on the state of the new offerings’ finances, certain funds may have a more tailored value-creation plan to optimize profitability. Portfolio realignment may also present exit opportunities as newly independent medtech companies look to M&A to drive their growth. Centene, UHG, CVS Health, and Johnson & Johnson have all been acquisitive of companies closer to their strategic initiatives even while they spin off and divest noncore assets. Regulatory scrutiny Deal approval is far from guaranteed, even for scope deals. Regulators are increasingly willing to pursue litigation to block deals. One example was the Department of Justice’s challenge of UHG’s acquisition of Change Healthcare on the grounds that the deal would harm competition in commercial health markets. While UHG prevailed, the lawsuit delayed the acquisition for close to a year and the deal was contingent on the divestiture of Change’s ClaimsXten business. Uncertainty over regulatory action may make corporate buyers think twice about scale asset acquisitions. Furthermore, assets considering bids from both corporate acquirers and private equity sponsors may prefer private equity when there is more surety the transaction will be approved. Asset prices Even as publicly listed asset prices receded in 2022, healthcare company prices remained relatively high in most sectors. The S&P 500 healthcare index was down around 4% in 2022, compared with about –19% for the S&P 500 overall. In addition, the largest corporate acquisitions had impressive multiples attached to them. Amgen paid around 25 times trailing EBITDA for Horizon Therapeutics, and Johnson & Johnson paid about 45 times trailing EBITDA for Abiomed. Pfizer paid 14 times revenue for Biohaven Pharmaceuticals, which did not generate EBITDA in 2022 but saw around 270% revenue CAGR from 2020 to 2022. Even though the cost of debt has risen in the past year, prized healthcare assets still command high multiples. Private equity funds hold large stores of dry powder, and acquisitive corporate players have huge cash balances after record profitability in 2022. Bids are likely to remain competitive even with the challenging debt environment. Strategic partnerships Partnerships between corporate acquirers and private equity sponsors are becoming increasingly common and provide benefits to both parties. These strategic partnerships provide private equity sponsors both access to capital and a potential path to exit. Meanwhile, the corporate participant also benefits by sharing the financial burden and accessing the strategic playbooks honed by private equity sponsors. Welsh, Carson, Anderson & Stowe is notable for this approach. In early 2022, WCAS coinvested in Liberty Dental Plan with Anthem (now part of Elevance Health), a Liberty customer since 2010. The agreement with WCAS will enable Liberty to expand into additional markets and serve a greater number of members. Later in the year, WCAS teamed up with Humana on a second CenterWell joint venture. The two will deploy $1.2 billion to develop 100 new senior-focused primary care clinics between 2023 and 2025. Expect more competition for deals when the market recovers As the equity and debt markets inevitably stabilize, corporate M&A activity in healthcare will recover. We expect to see corporate M&A recover across the board in pharma, medtech, payer, and provider, and even in healthcare IT as horizontal tech players get more excited about vertical healthcare software. As corporations remain flush with cash, private equity sponsors may look to corporate partnerships for both access to capital and an assured path to exit. We have mentioned in past reports that the most successful acquirers have a clear plan to boost capabilities. This becomes even more critical when a broader set of competitors are all leaning into the same sectors and when asset prices remain historically high. Read the Next Chapter Exits: Economic Environment Shapes Landscape Read our 2023 Global Healthcare Private Equity and M&A Report Download the PDF EXPLORE THE REPORT

At a Glance

Corporate healthcare deal activity fell in 2022 as companies pressed “pause” on mergers and acquisitions in the face of uncertainty in the debt and equity markets.
Deal value increased for the provider sector, but pharma, payer, and medtech all saw total deal value fall.
Given the cash on hand for many strategics, the allure of buying growth, and the looming patent cliff in biopharma, strong corporate deal activity is likely to recover relatively soon, particularly in pharma and medtech.
Looking ahead, cross-sector competition for certain types of assets, ongoing portfolio management by corporate players, and increased regulatory scrutiny will impact private equity deal activity.

Corporate healthcare mergers and acquisitions (M&A) deal volume dropped in 2022 and average deal size fell, resulting in lower total deal value than in 2021. This state was not unique to healthcare, as corporations across industries took a wait-and-see approach to M&A given uncertainties in the debt and equity markets.

Nevertheless, the fundamentals of healthcare M&A remain strong, and 2022 featured multiple highlights. The provider sector showed resilience, with activity partially attributable to the availability of smaller assets allowing for multiple deal theses relative to other healthcare sectors. Additionally, two megadeals in the life sciences sector may point to more robust deal activity to come: Johnson & Johnson’s nearly $17 billion acquisition of Abiomed in November and Amgen’s $28 billion acquisition of Horizon in December.

For more details on sector trends, see the chapter “M&A in Healthcare and Life Sciences: Why the Industry’s Wait-and-See Days Will End” from our M&A Report 2023.

Given the large amount of cash on hand and the growth M&A can provide, we think strong corporate deal activity will return relatively soon. This is particularly true for pharma, where there is the looming issue of patent expiry. Globally, the top 15 drugs coming off patent by 2030 generated more than $100 billion in sales in 2020. Additionally, cash balances are high, with the top 25 pharma, medtech, and payer companies all having at least 15% of their past 12 months’ revenues on hand in the form of cash.

Several factors related to corporate M&A activity will impact the healthcare private equity buyout landscape.

Cross-sector competition

The past decade has seen a growing field of interest in payer and provider assets. This trend is continuing and perhaps accelerating as the line between retail, wellness, and healthcare continues to blur. Financial sponsors, large corporate healthcare businesses, and newer strategic disrupters may find themselves competing head-to-head for market-leading assets at the vanguard of healthcare.

Take Signify Health, for example. Before CVS announced the $8 billion acquisition in September, Bloomberg reported that Amazon, UnitedHealth Group, and Madison Dearborn-backed Option Care Health were all considering offers.

Given increased competition, private equity sponsors may want to carefully consider deals as the valuations applied by strategic competitors to deals could be difficult to match. Many deals that are considered large for private equity funds are small by corporate acquisition standards, and corporate bidders often have creative deal theses that layer synergies or long-term disruptive aspirations into their valuations.

Portfolio realignment

In 2022, several major healthcare companies reconsidered their portfolios as they focused on their core offering. This included both carve-outs that are directly addressable to private equity investors and spin-offs, which come with a different set of variables.

Some carve-outs came from healthcare-focused companies that had standalone assets that participated in markets outside their core strategic initiatives. Centene announced last year that it planned to exit the pharmacy benefits management and pharmacy space as part of its ongoing strategic review of its business. As a part of that review, Centene carved out specialty pharmacy PANTHERx, which was acquired by Nautic Partners, Vistria Group, and General Atlantic for $1.4 billion. In other cases, companies with broad technology platforms, including IBM and Informa, carved out healthcare-specific assets. Portfolio realignment is likely to continue to present opportunities for private equity carve-outs.

Meanwhile, the medtech sector saw a particularly busy year for spin-off and disposal announcements: 3M, GE, Johnson & Johnson, and Medtronic all signaled plans to realign or exit their medtech divisions—or parts of their medtech divisions—in 2023, with GE completing a spin-off of its healthcare business in early January of 2023. Some of the newly created spin-offs may be small enough for a take-private play, and coverage from Bloomberg suggests private equity funds are already evaluating the two companies Medtronic plans to spin off. Depending on the state of the new offerings’ finances, certain funds may have a more tailored value-creation plan to optimize profitability.

Portfolio realignment may also present exit opportunities as newly independent medtech companies look to M&A to drive their growth. Centene, UHG, CVS Health, and Johnson & Johnson have all been acquisitive of companies closer to their strategic initiatives even while they spin off and divest noncore assets.

Regulatory scrutiny

Deal approval is far from guaranteed, even for scope deals. Regulators are increasingly willing to pursue litigation to block deals. One example was the Department of Justice’s challenge of UHG’s acquisition of Change Healthcare on the grounds that the deal would harm competition in commercial health markets. While UHG prevailed, the lawsuit delayed the acquisition for close to a year and the deal was contingent on the divestiture of Change’s ClaimsXten business.

Uncertainty over regulatory action may make corporate buyers think twice about scale asset acquisitions. Furthermore, assets considering bids from both corporate acquirers and private equity sponsors may prefer private equity when there is more surety the transaction will be approved.

Asset prices

Even as publicly listed asset prices receded in 2022, healthcare company prices remained relatively high in most sectors. The S&P 500 healthcare index was down around 4% in 2022, compared with about –19% for the S&P 500 overall. In addition, the largest corporate acquisitions had impressive multiples attached to them. Amgen paid around 25 times trailing EBITDA for Horizon Therapeutics, and Johnson & Johnson paid about 45 times trailing EBITDA for Abiomed. Pfizer paid 14 times revenue for Biohaven Pharmaceuticals, which did not generate EBITDA in 2022 but saw around 270% revenue CAGR from 2020 to 2022.

Even though the cost of debt has risen in the past year, prized healthcare assets still command high multiples. Private equity funds hold large stores of dry powder, and acquisitive corporate players have huge cash balances after record profitability in 2022. Bids are likely to remain competitive even with the challenging debt environment.

Strategic partnerships

Partnerships between corporate acquirers and private equity sponsors are becoming increasingly common and provide benefits to both parties. These strategic partnerships provide private equity sponsors both access to capital and a potential path to exit. Meanwhile, the corporate participant also benefits by sharing the financial burden and accessing the strategic playbooks honed by private equity sponsors.

Welsh, Carson, Anderson & Stowe is notable for this approach. In early 2022, WCAS coinvested in Liberty Dental Plan with Anthem (now part of Elevance Health), a Liberty customer since 2010. The agreement with WCAS will enable Liberty to expand into additional markets and serve a greater number of members. Later in the year, WCAS teamed up with Humana on a second CenterWell joint venture. The two will deploy $1.2 billion to develop 100 new senior-focused primary care clinics between 2023 and 2025.

Expect more competition for deals when the market recovers

As the equity and debt markets inevitably stabilize, corporate M&A activity in healthcare will recover. We expect to see corporate M&A recover across the board in pharma, medtech, payer, and provider, and even in healthcare IT as horizontal tech players get more excited about vertical healthcare software. As corporations remain flush with cash, private equity sponsors may look to corporate partnerships for both access to capital and an assured path to exit.

We have mentioned in past reports that the most successful acquirers have a clear plan to boost capabilities. This becomes even more critical when a broader set of competitors are all leaning into the same sectors and when asset prices remain historically high.

Read the Next Chapter

Exits: Economic Environment Shapes Landscape