By the Jefferies Editorial Team
Michael Dodds is a Managing Director and Global Head of Healthcare Sponsor Coverage at Jefferies. He joined the firm in 2005 and has nearly two decades of investment and merchant banking experience in the sector.
Healthcare has been a hotbed of private equity activity for the past decade, accounting for over 20 percent of global buyouts in 2021. However, like many sectors, dealmaking slowed in recent years amid rising interest rates and inflation. Sponsor-led healthcare transactions dipped in 2022 and 2023.
Now, with a new easing cycle underway, there’s uncertainty around what’s next for healthcare PE. At last year’s Global Healthcare Conference, participants predicted an uptick in the sector’s M&A—but driven more by strategic buyers than sponsors.
Fresh third-quarter data point to a healthy market. Healthcare transaction value rose year over year, with deals from TowerBrook, CD&R, and The Carlyle Group headlining the quarter.
Jefferies Insights sat down with Michael Dodds, Managing Director in Healthcare Investment Banking, to discuss private equity activity in healthcare this year—and where it could be headed next.
Healthcare Transactions in ‘24: A Slow but Steady Path Forward
September’s 50-basis-point cut was welcome news to investors—but compared to the near-zero rates of recent years, borrowing costs are still high. The target range for the federal funds rate remains between 4.75 and 5 percent.
The macro environment is improving, and there’s a growing appetite for capital deployment and dealmaking, but the floodgates won’t open all at once.
“There is more stability in the market today, but rates are still high, and leverage multiples have shifted from a few years ago. Most sponsors expect the current deal environment to hold steady through year’s end,” Dodds shared.
Third-quarter activity reflects this prediction. Healthcare M&A rose in Q3, but just 6 percent—a positive but modest sign of recovery. Dodds explained that it will take time for valuations to align and leverage multiples to catch up with new rate cuts.
“Bid-ask spreads are narrowing, but there are still some challenges around dealmaking. Over the next six months, we’ll see buyers gain confidence and sellers adjust their expectations as everyone continues to get comfortable with the new environment,” Dodds said.
Dodds also emphasized the importance of a well-run process in times of uncertainty. Strong multiples will depend heavily on bankers’ ability to drive competition and optimize deal structures. For the Jefferies team, this has been a key focus, Dodds said, as deals no longer come as easily as they once did. Having experienced M&A bankers and expertise in the sector are vital.
How Sector Dynamics Are Shaping Healthcare M&A
Healthcare’s rebound won’t unfold evenly, as challenges and opportunities vary across subsectors. Dodds pointed to medical technology, life sciences, and pharmaceutical services as areas where he expects sponsor-led transaction volume to remain strong. Plus, PE is also looking into specific pockets within healthcare services, like infusion, home health, hospice and pharmacy, where activity is high and a strategic or IPO exit is likely.
Notable deals from the quarter include TowerBrook and CD&R’s acquisition of R1 RCM, a technology-driven revenue cycle management company, for $8.3 billion. The Carlyle Group also led a $3.6 billion acquisition of Vantive Kidney Care, bringing the firm’s total investments in medtech and diagnostics to $40 billion in enterprise value.
Biopharma remains the most active healthcare subsector year to date, with 42 transactions. However, many of these are strategic-led deals, such as Eli Lilly’s Q3 acquisition of Morphic for $3.2 billion.
What’s Holding Back IPOs in Healthcare?
The IPO market divided opinions at last year’s Global Healthcare Conference. About half of participants anticipated a rebound in 2024, while the other half expected it to stay sluggish. Healthcare go-public activity has slowed in recent years, reflecting a tough capital markets environment for new listings.
Dodds expects private equity to stay cautious about IPOs—except for the largest funds, where taking companies public may be the only feasible path to liquidity.
“Generally, sponsors have a bias against IPOs. They take a long time to monetize, so they’re a big drag on funds’ IRR,” he explained. “However, we expect the IPO market to become a more popular exit path for healthcare private equity firms, especially as the companies they own become larger and public markets continue to improve. We’re seeing evidence of this already.”
Dodds expresses cautious optimism about the near-term outlook for the healthcare sector. As the economic climate stabilizes and the Fed continues lowering rates, sponsor-led deal activity is expected to pick up.
For the Jefferies team, a focus on a strong advisory and transaction process has been crucial in managing the downturn—and will continue to be as markets recover. With over 130 healthcare bankers worldwide, the firm remains one of the leading advisors in global healthcare M&A, equity transactions, and financing.
