Healthcare M&A: Interest Rates & Technology Fuel a Strong 2024 Start

Updated on May 6, 2024

If first-quarter US healthcare mergers and acquisition (M&A) activity is any indication, 2024 has the potential to be a notable year for dealmaking. US healthcare and life sciences sell side deal kickoffs, especially asset sales and mergers from October 2023-March 2024 on Datasite, which facilitates about 14,000 new global deals annually, increased 3% compared to the same period 12 months ago. Furthermore, since these are deals at their inception, rather than announced publicly, these figures provide a good indication of what’s to come in the next six to nine months. 

Some of the increase in deals is the result of successive interest rate hikes by the Federal Reserve, which has helped dealmakers to act with more certainty, and plan more effectively. Yet, financial distress, value-based care, and digital healthcare services are perhaps the larger forces powering current deal activity in the healthcare sector, ultimately leading to a potentially stronger M&A outlook for the rest of the year. 

Low reimbursement rates, regulations and higher costs continue to hurt some healthcare providers, pushing them to seek deals with larger partners. Others are hoping to leverage partnerships or acquisitions to make strategic investments, such as addressing population health issues through value-based care, which incentivizes improving a community’s health outcomes while optimizing resource use. 

There is also interest in investing in innovative technologies to improve digital efficiencies. Many providers will continue to invest in or buy, rather than build, critical telehealth, health tech and analytics capabilities. Artificial intelligence (AI) also continues to power these types of investments, particularly as the technology can help examine patient records, identify diseases early on, and suggest enhanced patient care services and therapies – often at a lower cost while simultaneously increasing overall effectiveness. In fact, the global AI in healthcare-market size is expected to increase to $188 billion by 2030, up from $15 billion in 2022.

Whatever the case, dealmakers may find they are able to complete the due diligence process of a deal in less time and complete more transactions than before. After two years of climbing, due diligence times for deals on Datasite are dropping again, while deal closure rates are starting to inch up, following a significant decline in 2023. For example, US diligence times decreased by an average of 10 days in Q1 2024, compared to the same time a year ago, while deal closure rates have increased to 53% in Q1 2024 from 51% in Q1 2023.  

However, driven by market conditions and a growing demand for comprehensive intelligence, there has been a shift in due diligence, as dealmakers have moved from focusing solely on speed, to a greater emphasis on the quality of a deal. Buyers are seeking deeper insights, necessitating greater disclosures from sellers, and reflecting a more discerning approach to dealmaking, where thoroughness is prioritized over haste. This is evident on the Datasite platform when examining the volume of documents being uploaded to virtual data rooms. Last year, documents and artifacts associated with new deals on Datasite increased by double digits compared to a year ago, and this trend shows no sign of stopping with first quarter tallies up year-over-year by more than 40%. 

As the demands and complexities of M&A continue to change, technology can help. Those who are ready for the challenges and prepared to leverage the right tools to get deals over the line will forge ahead.

Mark Williams
Mark Williams
Chief Revenue Officer at Datasite

Mark Williams is Chief Revenue Officer at Datasite.