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The national health care and life science merger and acquisition landscape remained weak in the first quarter of 2024, according to the latest data from international audit and advisory firm KPMG. But experts say New York could be poised for its own flurry of activity going forward.
The data shows that in Q1, there were less than 300 deals nationally totaling $60 billion, a 31% plunge from the first quarter of 2023, when deals totaled $86 billion. Kristin Pothier, KPMG’s global head of deal advisory and strategy for health care and life sciences, attributed the findings to persistent inflation, changing interest rate outlooks and a difficult regulatory environment. Moreover, she said many companies are still trying to integrate previously acquired businesses into their firms, putting the brakes on dealmaking.
Pothier did say that analysts expect deals to climb steadily through the summer. To that end, Ashraf Shehata, KPMG’s U.S. sector leader for health care, said New York is positioned to see more M&A activity. The recent Change Healthcare cyber attack could catalyze more M&A deals going forward, as the lingering effects of the attack could drive up the cost of maintaining cybersecurity and cause more physicians to consider selling their practices this year, Shehata said.
“If you look forward and you feel like the costs are going to go up and the risks are going to go up, and you have a very attractive acquisition offer, that might make it make sense to reconsider those options,” Shehata said.
Similarly, he added, there is growing M&A activity among insurers, such as Optum and Cigna, who have large member bases in New York and are looking to acquire specialty physician practices. While primary care practices were the hot-ticket item last year, 2024 has given way to interest in specialty care, he said. In January Eric Palmer, the chief executive of Cigna’s health care services arm, said the insurer is focused on nabbing home health, behavioral health and virtual care firms instead of primary care groups.
Additionally, Shehata said, New York’s bustling hospital systems could boost merger and acquisition activity this year. As systems continue to contend with high labor costs and spending pressures, smaller ones that make less than $1 billion in annual revenue could push for deals, he said.
He added that the trend is already evident in New York in Northwell Health’s planned merger with Connecticut-based Nuvance Health, a deal Crain’s reported would cost “hundreds of millions” of dollars. If approved, Northwell would scoop up Nuvance’s seven hospitals to create a 28-facility, 14,500-provider system.
“That’s exactly where I see the future is going,” Shehata said.
Life science activity could be another area where New York could outpace the national market going forward. According to the KPMG data, life science mergers and acquisitions made up the vast majority of national deals and funding in Q1, with about 260 agreements amounting to just over $55 billion.
The metropolitan area is poised to do better because its market continues to thrive despite funding pressures, Shehata said. Biotechnology companies made up nearly a fifth of venture capital deals made in the city in the first quarter of the year, evidence of growth. Lower Manhattan-based oncology company OnCusp and Jersey City ophthalmology firm Claris Bio nabbed two of the largest deals of the quarter at $100 million and $57 million, respectively, according to Digital Health New York.
Shehata said he expects the coming months to yield more progress in mergers and acquisitions as interest rates recover and the economic environment becomes less uncertain.
KPMG is headquartered in Midtown and tracks health care deal activity each quarter.
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Jacqueline Neber , 2024-05-02 11:33:05
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