In this episode of the Healthcare M&A Podcast, HORNE Capital Markets Senior Manager Jared Barraza is joined by Phil Kim, Partner at Shepherd Mullin, to examine the evolving dynamics of healthcare transactions. Their conversation covers platform longevity, market headwinds, and how AI is reshaping subverticals across the industry.
Market Recap: A Year of More Activity, Fewer Closings
While the volume of closings declined from 2023 to 2024, deal activity was clearly on the rise. Many investors, particularly private equity firms, continued to pursue add-on acquisitions and recapitalizations. But economic uncertainty and regulatory complexity delayed many transactions.
The number of diligence matters increased, reflecting a market where interest remained high, even if final execution lagged. This mirrored a broader industry experience: quality of earnings firms were busy, yet transaction completions didn’t follow suit at the same pace.
Pressure to Exit and Portfolio Maturity
Platform exits have become more urgent as investors approach the end of their holding periods. Data shows that certain subverticals—particularly dental and behavioral health—have a significant percentage of platforms held five years or longer. Dental remains the most mature, with continued consolidation through add-on activity.
Other verticals facing similar timelines are likely to experience increased exit pressure, regardless of whether those exits occur from a position of strength or necessity. For some, challenging margins or reimbursement headwinds may turn M&A into a survival tactic.
The Expanding Role of AI
AI is increasingly present across the healthcare M&A landscape. From digital consent forms to advanced diagnostic tools, artificial intelligence is now part of the operational fabric. Subverticals like dental, ophthalmology, and behavioral health are seeing strong application of AI, including remote monitoring, clinical decision support, and patient engagement tools.
While there is growing interest, the influx of point solutions is expected to drive consolidation. Strategic buyers and sponsors will likely step in to integrate fragmented offerings into more
Subverticals to Watch in 2025
Several subverticals are positioned for increased M&A activity in the coming year:
- Behavioral Health: Continued growth in outpatient mental health, substance use disorder treatment, and teletherapy
- Dental: A mature but still active space with strong PE presence and AI adoption
- Infusion Pharmacy: Expansion of services and geography may drive acquisitions
- Ophthalmology & Vision Care: Consolidation trends across elective procedures and vision services
- Home Health & Hospice: Aging demographics and value-based care are fueling demand, despite funding uncertainty
- Women’s Health: Fertility, maternal fetal medicine, and integrated care models remain attractive
These areas reflect a broader shift toward outpatient care, consumer accessibility, and specialty services—all targets for platform creation and add-on growth.
Legal and Regulatory Watchpoints
From a legal perspective, transaction diligence is increasingly shaped by:
- Antitrust scrutiny at both federal and state levels
- Data privacy and cybersecurity risk, particularly amid increasing ransomware threats
- Compliance with key statutes, including the Anti-Kickback Statute, Stark Law, and False Claims Act
- AI-related liability and consent issues, especially in digital health settings
Antitrust enforcement remains a priority for regulators and is affecting how transactions are structured and reviewed. Meanwhile, cybersecurity and HIPAA compliance are more crucial than ever for closing deals successfully.
Final Thoughts
Despite headwinds, healthcare M&A remains a resilient and attractive space for investors and operators alike. While some exits will be strategic and others opportunistic, the underlying trends—aging demographics, innovation, and decentralized care—continue to drive activity.
Those who stay informed, embrace technological change, and understand the evolving legal landscape will be best positioned to succeed in 2025 and beyond.
