A recent report released on Friday by KPMG highlights a significant trend among healthcare and life sciences executives, forecasting an increase in mergers and acquisitions (M&A) in the upcoming year. The survey revealed that over three-quarters of the executives, specifically 76%, expressed intentions to elevate their M&A activity compared to 2024. Among those surveyed, 43% anticipated a rise in deals by at least 10%, while 19% planned to maintain their current level of merger activity. Notably, only 5% expected a decline in deal-making in 2025.
Ash Shehata, KPMG’s U.S. sector leader for healthcare, elaborated on the findings in an interview with Chief Healthcare Executive®, suggesting that the outlook for deal-making is buoyed by a potential decrease in regulatory scrutiny. Shehata noted that healthcare leaders anticipate a more business-friendly environment following President-elect Donald Trump's anticipated return to office, particularly with his appointment of Andrew Ferguson to succeed Lina Khan as chairman of the Federal Trade Commission.
“We think deregulation is going to be something that will create a momentum for opportunity, because that'll, I think, open up some areas of innovation, and maybe new technologies in other areas,” Shehata stated. Furthermore, executives are also projecting possible reductions in business taxes, which could further stimulate M&A activity. Shehata added, “KPMG is anticipating a potentially business-friendly tax rate environment, which is also going to move the needle pretty quickly, and then it'll likely bring in both private equity and VC money into the industry.”
In addition to the regulatory landscape, Shehata emphasised the ongoing importance of artificial intelligence in shaping healthcare transactions. As AI continues to permeate the sector, organisations are expected to seek partnerships with firms that offer innovative AI solutions. "It's about AI making its way into healthcare and life sciences in ways that we're kind of still imagining,” he remarked. Major tech companies including Oracle, Microsoft, Google, and Amazon Web Services are already making significant inroads into the healthcare sector, with Oracle notably relocating its headquarters to Nashville, known as a hub for healthcare innovation.
The report from KPMG outlined that interest in interoperability solutions for data sharing between healthcare providers and insurers is also increasing. “We've been doing a lot of work around interoperability between payers and providers,” Shehata mentioned, indicating a ripe opportunity for collaborative investments in this area.
While the optimistic forecast for M&A in healthcare stands out, the report also highlighted a slight decline in the number of transactions for both the healthcare and life sciences sectors in 2024, with mergers decreasing from 991 in 2023 to 898 in 2024, and healthcare transactions dropping from 932 to 845 in the same period.
Despite the hopeful outlook, potential barriers to increased M&A activity remain. Factors such as persistent inflation, which may prompt the Federal Reserve to maintain higher interest rates, could dampen deal-making momentum. Additionally, Shehata cautioned that higher valuations are anticipated in the coming year, with 62% of executives projecting an increase and 23% expecting valuations to remain unchanged.
Concerns surrounding the costs of labour and supply chain pressures are also significant. "When we still look at the costs of the fundamentals of our industry, labour costs are still very, very high,” Shehata noted, indicating a continued challenge for healthcare organisations. As these industries navigate the complexities of the current market, discussions about operating efficiencies and cost reductions will likely become key topics.
KPMG's survey pointed out that life sciences executives are particularly optimistic, with 86% expecting to engage in more M&A activity in 2025.
As the healthcare landscape evolves with the integration of advanced technology and an anticipated shift in administrative policies, leaders in the sector are poised to adapt their strategies to leverage emerging opportunities and navigate the challenges that lie ahead.
Source: Noah Wire Services