Despite uncertainty in some parts of the market in 2023, many Harris Williams clients in healthcare and life sciences generated strong attention from investors, highlighting the continued attractiveness of high-quality, differentiated businesses with defensible market positions and resilient revenue.

Looking ahead, we’re encouraged by moderating inflation, a resilient labor market, a positive stock market trajectory, healthy company earnings, and stable interest rates. At the same time, we are closely watching macroeconomic conditions and potential market disruptions, including the upcoming U.S. election and ongoing global geopolitical conflicts. Read more about the trends impacting the overall market >

Renewed Optimism for 2024

Many healthcare and life sciences businesses generated investor interest in 2023 due to their non-discretionary and recurring demand. Investors prioritized companies with exceptional organic growth and well-integrated business units in outsourced pharma services, healthcare IT, payer technology and services, medical products and devices, and a variety of provider subsectors. Multi-site consumer healthcare continues to be supported by secular trends, and there's growing optimism for the pace of investor activity across the segment in 2024.

Adding Value Across Pharma

Pharmaceutical companies of all sizes are seeking to streamline drug development and maximize returns on approved therapies. As a result, they're increasingly turning to outsourced technology and services providers to boost speed and efficiency across their value chains. Such outsourced service providers will continue to become more integral to successful and effective pharmaceutical R&D, positioning the subsector for long-term growth.

IntegriChain exemplifies the investor appeal of tech-enabled outsourced pharma services providers. Its pharmaceutical technology, data, consulting, and outsourcing solutions serve as a fully integrated platform for commercialization and market access, helping drug manufacturers bring their science to market while ensuring patients have affordable, timely, and sustainable access to therapy—the ultimate goal for any growth-focused pharma business.

Improving Performance via Technology

Like pharma companies, hospitals and health systems are operating in a more complex financial, operational, and regulatory landscape. Consolidation of hospitals and health systems continues to complicate the industry’s financial environment and the management of net revenue. Meanwhile, large healthcare networks are facing intensifying margin pressure. 

As healthcare businesses grapple with these challenges, a range of tech-forward companies find their products and services in high demand, including revenue cycle management, financial reporting, supply chain optimization, vendor management, contracting, and compliance platforms. Kodiak Solutions, for example, offers a full suite of tech-enabled healthcare Office of the CFO solutions, ranging from software-only products to fully outsourced managed services, including its Revenue Cycle Analytics (RCA) platform. RCA, a solution of choice in the industry, leverages proprietary data and state-of-the-art technology to provide CFOs with net revenue visibility faster and with greater accuracy. 

Likewise, with healthcare costs expected to grow 6.4% in 2024¹—the highest rate in over a decade—more payers and employers are looking for innovative solutions to help reduce costs while providing improved access to care and better outcomes to members. Valenz, an integrated platform of health plan cost containment solutions, is an exemplar in the sector. The company’s healthcare ecosystem optimization platform improves cost, quality, and outcomes for employers and their health plan members. Companies like Valenz that serve small and medium enterprises and payors, enable self-insurance, and deliver tangible cost savings to their customers are positioned to grow significantly in the coming years.

Medical Device Tailwinds Remain Strong

The medical products and devices subsector also continues to attract investors due to a host of long-term, resilient tailwinds, including an aging population, rising incidence of chronic disease, and increased focus on early diagnosis and treatment. Greene Group Industries, a manufacturer of precision components for OEMs, showcases the investment potential within fast-growing medical device segments like robotic-assisted surgery and minimally invasive surgery. The company generated especially strong buyer interest due to its focus on fast-growing end markets, specialization in complex components, and differentiated ability to help customers from design and prototyping through production.

Resilient Demand for Providers

A variety of provider subsectors also exemplify the recession-resilient consumer demand today’s M&A buyers are looking for. MedSpa Partners is a prime example of a segment leader. By integrating and growing med spa practices under its platform, the business has created best-in-class customer experiences through support, collaboration, and community. In fact, the business has so much remaining potential that the current owners pursued a continuation vehicle versus an exit. Ovation, a scaled fertility lab services platform, also displays several sought-after characteristics, including a broad geographic reach, comprehensive service portfolio, and unique physician partnership model.

Looking Ahead

Looking ahead, we are encouraged by resilient investor interest across several areas of the healthcare landscape. While 2023 presented the industry with some challenges, its long-term demand drivers remain strong and intact. As economic conditions continue to improve, these demand drivers will gain momentum across healthcare subsectors.

For example, the pace of M&A across consumer healthcare accelerated in late 2023, with growing optimism for 2024. The space continues to be supported by secular trends, and investors have strong interest in differentiated platforms, particularly in the U.S. The most promising businesses are focusing on multi-tier strategies involving technology, patients, and personnel intended to improve efficiency and the patient and clinician experience.

The ongoing tech modernization happening across healthcare is also a boon to a range of innovative companies, from those that analyze vast amounts of data to guide pharmaceutical development to healthcare IT businesses focused on improving efficiency, coordination, and the patient experience. Delivery models for technology are evolving as this happens: The aperture is widening from subscription software models to businesses with diversified revenue models, whether through a managed services offering or by adding professional services to standalone software tools. This is expanding the opportunity for investors to add more value.

Overall, enthusiasm and interest in healthcare remains high among investors, with a growing backlog of high-quality companies expected to enter the market throughout 2024. To discuss M&A opportunities across the healthcare industry in detail, please contact our senior professionals.

1 CNN: Health care costs at work set to rise steeply in 2024; 10.31.2023.