Shifting regulatory and market dynamics are expected to drive increased mergers and acquisitions (M&A) activity in 2025, creating new opportunities for growth across the healthcare industry. This sentiment was affirmed at the J.P. Morgan Healthcare Conference earlier this year, where clients, speakers, and industry stakeholders expressed optimism that dealmaking would rebound following a slow 2023 and 2024.
To capitalize on this momentum, industry leaders must be strategic and agile in their approach to emerging opportunities. Given the rapid evolution of regulatory actions and economic conditions, leaders must be well-positioned to respond effectively. This article examines key factors influencing healthcare M&A and offers strategic insights for executives looking to seize emerging opportunities.
Market Valuations and Investment Trends
Valuations across most healthcare subsegments have retreated from their 2021 highs, creating a mixed landscape for dealmakers. While declining valuations pose challenges—such as increased scrutiny and selectivity from investors aiming to ensure acquisitions align with strategic goals and offer long-term growth potential—they also present opportunities to acquire assets at more favorable price points. The long-term outlook remains positive, with well-positioned assets expected to attract interest, particularly those demonstrating resilience, operational efficiency, and adaptability.
Investor capital is also primed for deployment. An estimated $3 trillion to $4 trillion in dry powder is available for investment, positioning private equity firms and institutional investors to actively pursue healthcare deals. However, increased competition for high-quality assets necessitates disciplined valuation strategies and thoughtful deal structuring. Successful acquirers will prioritize not only financial returns but also strategic synergies, such as expanding service offerings, integrating digital health solutions, and leveraging technological advancements to enhance patient outcomes.
Among the most transformative technological advancements is the continued adoption of artificial intelligence (AI) platforms. AI has become a major focal point for dealmaking, accounting for 42% of digital health funding and 31% of transactions last year. From optimizing provider workflows to accelerating clinical trials, AI-driven solutions are increasingly attractive to investors due to their ability to enhance efficiency, modernize outdated processes, and reduce administrative burdens.
Regulatory Considerations and Market Consolidation
Healthcare organizations must proactively monitor and assess how the new administration will impact compliance requirements, reimbursement models, and market access strategies. For example, the administration has pledged to advance the next round of drug price negotiations under the Inflation Reduction Act. Since 2023, several pharmaceutical companies have filed lawsuits challenging the program’s legality. In late February, the administration defended the program while also signaling a willingness to solicit industry input on potential changes to its management. Potential shifts in drug advertising regulations could also influence strategic decisions within the pharmaceutical sector.
Beyond key health agencies, developments at the Federal Trade Commission (FTC) are critical to watch, as the agency plays a significant role in M&A oversight. During the previous administration, FTC leaders took an aggressive stance on consolidation, particularly targeting pharmacy benefit managers and blocking several hospital mergers. While some anticipate a more favorable regulatory environment for M&A under new leadership, Chair Andrew Ferguson has indicated that existing merger guidelines will remain in place for now. Organizations seeking economies of scale and operational efficiencies through M&A must remain vigilant regarding potential antitrust scrutiny and broader healthcare policy shifts that could affect transactions.
Adapting to Market Changes
We expect investor confidence to drive increased deal activity by mid-2025. As executives evaluate M&A opportunities, success will depend on their ability to navigate market fluctuations and regulatory shifts. Strategic decision-making and targeted investments will be crucial. Organizations that can adapt quickly and execute disciplined growth strategies will gain a competitive advantage in an increasingly dynamic environment.