Executives in the healthcare space are expecting more M&A activity in 2020 compared to 2019, according to a new outlook from KPMG, which measured the predictions of healthcare and life science investors in a survey. Other areas top of mind include health IT as an investment and the 2020 election as a potential upset.
KPMG surveyed 330 corporate, private equity and investment banking executives in the healthcare & life sciences sector.
The top areas investors are most interested in for 2020 included:
- Healthcare IT/revenue cycle management (30%)
- Pharma/biotech (24%)
- Behavioral health (23%)
- Home care/hospice (23%)
- Medical devices, instruments and equipment (20%)
The two lowest subsectors included managed care companies (15%) and hospitals and health systems (8%). Investors considered cost consolidation and economies as scale as the biggest driver of M&A activity in 2020 (58%), followed by accretive acquisition strategies (34%). Nearly a third of investors (31%) saw changing payment models as an M&A driver as well.
"Strong investor interest in healthcare IT mirrors the realization that data is the new healthcare currency and that data is not useable without the proper IT in place," Kristin Pothier, global and national strategy leader for KPMG's Healthcare and Life Sciences practice, said in a statement. "Our deal and strategy work fueled by our HCLS IT Center of Excellence allows our clients to diligence these businesses right and make raw terabytes of data come to life for immediate return."
The findings buck concerns of an upcoming recession, which were raised during the summer of 2019. Just 23% of life sciences investors said the sector was in a bubble––a steep drop from 48% who said the same a year prior. Half of healthcare investors saw 2019 as a bubble, compared to 39% for 2020. And more healthcare investors saw strong or moderate fundamentals for 2020 (51%) compared to 2019 (25%). The same was true for life science investors––42% see strong fundamentals in 2020 compared to 20% in 2019.
"We saw a high amount of deal activity in 2019 despite some concerns of a bubble, and that is likely to carry over to 2020," Carole Streicher, deal advisory leader for KPMG's Healthcare and Life Sciences practice, said in a statement. "The election-year political climate, however, has given some cause for concern, but other fundamentals are very positive for deals and investment, particularly around the need to cut costs and invest in innovation."
Investors are concerned about the 2020 election, which could negatively impact activity in the healthcare space. Nearly half of healthcare investors (48%) and life science investors (47%) predicted a negative impact, while 19% of investors said healthcare investment and 13% said life science investment could increase as a result of the election.
"Healthcare is an important campaign issue; increasing access to healthcare and lowering prescription drug costs will be among the highest priorities for voters in districts across the country," S. Lawrence Kocot, national leader of KPMG's Center for Healthcare Regulatory Insight, said in a statement. "The acceleration of U.S. healthcare spending represents both an opportunity and a risk for healthcare investors."