As we laid out in our broad health care services roundup entitled “In 2024 We Predicted a Banner Year in Health Care Services M&A in 2025: Here’s What We Got Right and What We Didn’t Anticipate,” there were a variety of macroeconomic issues impacting mergers and acquisitions activity across all industries—health care in particular.
Among them were the following:
Given that, depending on the segment, 25-50% or more of individuals receiving some form of behavioral health care are covered by Medicaid, buyers’ evaluations of go-forward risk due to changes in eligibility standards – primarily a new work requirement – weigh heavily on demand and valuation. This is particularly noteworthy because the actual impacts will likely not become clear until at least mid-2027 after the guidelines become effective January 1st of that year.
Many individuals receiving behavioral health services are generally excluded from the work requirement. But it is feared that, in some cases, the administrative burdens required to obtain these exclusions may result in otherwise appropriate individuals losing Medicaid coverage. What makes it even murkier is the fact that each state has the authority to determine how it will adopt these requirements. Even murkier still is how the loss of ACA subsidies will impact those receiving care under these plans. With so many unknowns, it’s no wonder that buyers interpret the risk of reduced utilization differently both individually and across segments.
Based on nearly eight months of feedback from buyers, below is our impression of how buyers – rightly or wrongly – are assessing this risk. For context, we include Medicaid home health.
One more thing.
With respect to the work requirements dictated in the OBBB, between 2018 and 2019, Arkansas and New Hampshire introduced their own such requirements to their Medicaid programs. The result? The very same fears mentioned above:
a substantial number of enrollees that dropped out of each program did so not because they weren’t working, but because of the administrative burdens and complex paperwork necessary to document employment status. Moreover, neither state reported any significant increase in employment as a result of their initiatives. In the end, Federal courts ruled that, among other reasons, the legislation was inconsistent with Medicaid’s core objective of providing medical assistance, and both programs were halted. Will the same befall work requirements contained in the OBBB? Unclear. But it would appear there is precedent.
As the chart below illustrates, recent trends in SUD transaction volume have been lackluster. The reasons are manyfold.
The sector has been consolidating for more than ten years, leaving fewer and fewer acquisition candidates. This is particularly the case in medication assisted treatment. Moreover, due to a variety of reasons including preparations for an exit, shifts in strategy, and pauses to integrate deals, the buyers that dominated the space in MAT between 2020 and 2023 have largely been on the sidelines. Add to that the challenging macroeconomic environment and concerns regarding Medicaid, the fall-off is not surprising. What was surprising, however, was the decline in outpatient addiction deal flow. With a decline from 16 to 12 transactions, the 2025 volume could simply be an anomaly. But with trends favoring lower cost non-residential services, we would have anticipated an increase.
The good news is that private equity sponsored platforms and large independent companies remain committed to the space. Moreover, they know that acquisitions are generally the fastest avenue to growth and, notably, the most expedient route to expand geographic coverage or fill in service gaps to be better positioned to negotiate potentially lucrative contracts with private insurers. As such, demand for sizeable opportunities or highly strategic add-on providers remains, but not necessarily from the serial buyers that once dominated the SUD M&A landscape. It’s coming from a different cohort of buyers, who are highly selective and focused on pursuing a limited number of strategic opportunities each year.
So, the buyers are out there.
But identifying them requires a more refined and strategic process.
While SUD deal flow has been tepid, the remaining behavioral health segments have performed extremely well.
Perhaps most noteworthy is the turnaround we’ve seen in autism services. Not necessarily in volume trends – strong as they are, the recent growth in autism deals has been outpaced by what we’ve seen in mental health and intellectual and developmental disabilities.
But the resurgence of private equity sponsored platform transactions is very telling.
While shy of the peak reached in 2019, platform activity over the past two years has been the highest we’ve seen since 2020. The pull-back between 2020-2023 was eminently predictable. During this period autism was reeling from continued bad press, pressure from private insurers, strains on staffing, and notably, hangover from the failure of several high-profile consolidators (see the Braff Report, “Autism M&A Roars Back”). But with much of these concerns largely in the rear view (except perhaps payor pressure), PE is back – a leading indicator that should propel the space for years to come.
Despite the uncertain Medicaid environment, the I/DD space reached a new high in transaction volume in 2025 with 31 deals, just eclipsing the 30 recorded in 2021. Perhaps most interesting is that unlike most of the sectors we cover where deal flow plunged in 2022 and 2023 due to high inflation and rising interest rates, I/DD pretty much kept pace – and even exceeded – pre-pandemic levels. The takeaway? Sustained confidence in the demand and coverage for, and support of, such critical behavioral health care services.
We’ve long reported that as vibrant as the M&A market has been for autism services and I/DD over the recent past, mental health has surged to the top of behavioral health investors’ wish lists. No surprise then that the 45-degree upward trend that began in 2017 has continued largely uninterrupted. There has been, however, a subtle shift in focus, as buyers are increasingly interested in providers that, in addition to traditional psychiatry, also offer interventional psychiatry including, among other treatments and medication management, transcranial magnetic stimulation (TMS), and esketamine/ketamine therapy.
Unless some unexpected development upends it, you can bet that mental health M&A will continue to put up strong numbers in the coming years.
When we add all the segments together, including at-risk youth and acquired brain injury, aggregate behavioral health deal flow in 2025 was up 17% over the prior year. Moreover, 2025 marked the second consecutive year of gains over 2023.
This trend becomes more impressive when we compare it to all the other health care service sectors we cover – excluding behavioral health – which have been flat over the past three years.
As mentioned earlier, over the past year, we’ve summed up the market as a standoff between unfavorable macro and micro economic conditions and pent-up acquisition demand born of the slowdown between 2022 and 2024.
While below its peak in 2021, M&A demand for behavioral health has clearly overcome the headwinds that have held other sectors largely in check. Given increased utilization that is expected to continue well into the future, it remains one of the most sought-after sectors in health care services.
We expect more of the same in 2026.
Of all the strange numbers we saw this past year, deal activity for providers that focus on serving Medicaid beneficiaries was the most counterintuitive. As we laid out in our broad health care services roundup entitled, In 2024 We Predicted a Banner Year in Health Care Services M&A in 2025: Here’s What We Got Right and What We Didn’t Anticipate, the One Big Beautiful Bill (OBBB) included wholly unanticipated changes to Medicaid eligibility that various pundits estimated could kick up to 7 million people out of the program. But with each state determining how to implement the new guidelines, and the changes not going into effect for two years, the resulting impact is still very much in question. And with that much uncertainty in the air — uncertainty that likely won’t become more definitive until at least mid-2027 when the first wave of changes gets phased into the populace — buyers tend to get skittish. So, as we saw in certain behavioral health segments, we would expect deal flow to come down.
But as illustrated below, Medicaid home health actually set a record of 28 deals in 2025 just edging out the previous record of 27 set in 2024.
So, what gives?
Well, the numbers are deceiving.
If we look at quarterly numbers, an entirely different story emerges.
As the chart illustrates, 23 of the 28 transactions – more than 80% — were completed in the first half of the year before the OBBB was enacted July 3rd. And after? Deal flow plummeted, reflecting buyer concerns.
It remains to be seen how this all plays out. With respect to Medicaid eligibility, one of the key components of the bill was the introduction of a work requirement to maintain eligibility. Between 2018 and 2019, Arkansas and New Hampshire introduced their own work requirements to their Medicaid programs. The result? A substantial number of enrollees that dropped out of each program did so not because they weren’t working, but because of the administrative burdens and complex paperwork necessary to document employment status. Moreover, neither state reported any significant increase in employment as a result of their initiatives. In the end, Federal courts ruled that, among other reasons, the legislation was inconsistent with Medicaid’s core objective of providing medical assistance, and both programs were halted. Will the OBBB’s work requirements meet the same fate? Unclear. But it would appear there is precedent.
In Medicare home health, where (a) every summer there’s a five-alarm fire drill between CMS’s proposed and final rule, (b) a 6% cut is estimated to have a net impact of minus 1.3%, and (c) an on-again, off-again temporary behavioral adjustment that gets larger every year, buyers have been whipsawed back and forth on go-forward profitability — and valuation. What’s more, the expansion of the Home Health Value-Based Purchasing Model to all 50 states — a model that can increase or decrease a provider’s reimbursement by as much as 5% — has given them another thing to worry about and scrutinize. So, in addition to buyers being skittish on Medicaid (see above), they’re a bit shaky on Medicare. So, no surprise then that deal flow in the sector has fallen.
The good news is that after more than 30 years of consolidation, there is not an abundance of sizable independent acquisition candidates available to acquire. So, despite the reimbursement unknowns, if you’re looking to acquire a home health agency, the supply and demand curve favors attractive sellers.
Moreover, regarding go-forward reimbursement risk, as evidenced by CMS’s slowing down the implementation of various provisions that would lower payment rates, speculation is growing that future cuts may be more moderate.
Given the reimbursement and eligibility uncertainty regarding Medicare home health and Medicaid respectively, we would expect that buyers would gravitate to the comparatively more stable hospice segment. And here, just like in Medicaid, the numbers seem to belie the conditions on the ground with hospice deal flow down vs. 2024. In this case, however, the explanation is somewhat clearer. The number of independent providers with a census north of 100-150 — the target zone for many acquirers — is a key limiting factor. Moreover, as a result of CMS’s Provisional Period of Enhanced Oversight, which has focused on hospice providers in select states, we have seen a slowdown in deals due to protracted due diligence and deal abandonment.
Despite the above, demand is unquestionably there. No surprise then that over the past year, valuations are approaching the peaks seen between mid-2020 and mid-2022.
What’s more, just like we saw in the Medicaid figures, the quarterly numbers may be a better indication of market sentiment. In this case, we note the substantial rise in hospice transactions in Q3 and Q4.
Insulated from legislative and regulatory risk, the macroeconomic environment plays a comparatively greater role in private duty dealmaking. So, with inflation well below the peaks in 2022 and interest rates easing at the end of 2024, the rise in deal volume in 2025 played out true to form.
When we put it all together, aggregate home care and hospice deal flow has been essentially flat over the past three years and somewhat below pre-pandemic volume.
That said, we remain generally bullish on the space for several reasons, some of which have been alluded to above.
The basic premise was as follows:
After sitting out much of the previous 30 months (this, after gorging on deals in 2021 and the first half of 2022), and with unspent capital growing, private equity simply had to get back into the game — and fast. Moreover, with inflation falling and lingering concerns that high interest rates could upend the much hoped for “soft landing,” we surmised — and the Fed signaled — that we would likely see additional interest rate cuts in Q4 and into 2025. With the ability to once again leverage debt to boost returns, the amount of capital – both debt and equity – chasing deals would be substantial, driving up both volume and valuation.
What’s more, with an election looming, and neither candidate focusing on health care beyond a few quips regarding either revisiting or strengthening the Affordable Care Act, we did not anticipate groundbreaking legislation.
So, what happened.
Overall, we were spot on. Sort of.
Globally across all industries, 2025 was, in fact, a breakout year in mergers and acquisitions, with aggregate deal value soaring to the second highest total in the past decade.
The same held true domestically, with US private equity deal activity in 2025 and the previous five years a near mirror image of the global trends.
So, private equity did indeed get back in the game in a big way.
But it could have been better.
After a Q4 2024 of modest increases in the consumer price index (CPI-U), January unexpectedly spiked. February wasn’t much better. And the subsequent months, while somewhat improved, were still higher than what we saw in the back end of 2024 — the very trends that led to the optimism regarding interest rate cuts in 2025. With inflation back on the upswing, the Fed held firm until much later in the year.
While part of the president’s campaign leading up to the election in November included a more aggressive trade policy, few analysts anticipated the breadth and degree of tariffs that were eventually announced. Reflecting much of the sentiment on Wall Street, Mohit Kumar, Jefferies chief Europe economist, said that “The feeling in the market is it’s a negotiating tool.” While the implementation has been inconsistent, tariffs have, and continue, to create economic unease. The kind of uncertainty that is anathema to M&A.
In addition to the macroeconomic issues delineated above, there were two notable microeconomic factors that took a bite out of health care services M&A.
Completely coming out of the blue, the president’s One Big Beautiful Bill (OBBB) turned to Medicaid and the ACA to fund, in part, the extension and expansion of the tax cuts that were initiated in his first term. With respect to Medicaid, the bill introduced new eligibility criteria, including work requirements which go into effect in 2027. As for the ACA, despite Democratic efforts to secure an extension, the COVID-era premium subsidies that were set to expire at year end ultimately lapsed. As a result, many of those that enjoyed this benefit saw their premiums rise substantially on January first. While estimates vary, both of these measures could leave up to 11.8 million individuals uninsured.
Not surprisingly, many buyers were spooked by the potential fall off in utilization. Worse yet, unless there is a change in legislation, the impact of the new Medicaid guidelines will likely not become clear until mid-2027 when the first wave of beneficiaries begin to lose coverage.
As a result, many would-be buyers waited, and continue to wait out the uncertainty, the impact of which is real, but unquantifiable (you can’t count deals that might have been completed).
Taken together, these macro and micro economic surprises, as well as certain sector-specific factors weighed heavily on health care services deal flow. While deal volume was up, the change was marginal. What’s more, this is the first time in many years that the health care results were not a mirror image of overall M&A trends — a clear indication that the market developments described above influenced it disproportionately.
Note that, as illustrated above, several sectors diverged markedly from the overall health care services deal trends, reflecting one or more market characteristics including differences in buyer demand, outsized exposure to, or insulation from, the Medicaid and ACA provisions in the OBBB, and unique market dynamics.
See sector specific roundups for home health and hospice and behavioral health care.
Over the past year, we’ve summed up the market as a standoff between unfavorable macro and micro economic conditions and pent-up acquisition demand born of the slowdown between 2022 and 2024.
In 2025, demand edged out the financial and legislative headwinds. We expect more of the same in 2026.
But to prospective clients? Not so much. Because the advice seems self-serving, not to mention deceptively simple. So, what is this secret we speak of?
Well, based on more than 25 years’ experience and nearly 400 deals completed, we know that the key to success is to begin a dialog – at no cost to you – with a knowledgeable and experienced mergers and acquisitions advisor long before you’re ready to sell.
We know. Your malarkey meter is redlining.
But if you’ll suspend your disbelief for a few minutes, you’ll understand why.
When we first meet with prospects, we ask a lot of questions. Because the answers inform, among other things, growth, opportunity, risk, and goals and objectives. And when married with sector specific M&A conditions and trends – insights an experienced advisor can provide – an actionable mid-to-long-term strategy to increase the likelihood of a successful exit emerges.
If you’re growing at more than plus/minus 30% per year, you might think it’s the perfect time to sell. But the reality is that buyers will rarely adjust their multiple upwards enough to compensate you for “hyper-growth.” Better to wait for growth to taper and earn a more easily justifiable “growth” multiple that can be applied to substantially higher revenues and earnings.
All growth is not valued equally. For example, the value of adding a new location in another state can exceed the value of adding one in your existing footprint, because it demonstrates your ability to expand into new markets with different characteristics.
What about adding complementary service lines? Such strategies often seem to make a lot of sense. But buyers are a fickle bunch. Many prefer a narrow focus more than revenue diversification. While combining home health and hospice, for example, is an “easy” extension, for some, expansion into Medicaid reimbursed paraprofessional services may be a bridge too far. For them, such added revenues, at best, don’t add much value, and at worst, may even detract from it.
Performance measures such as gross profit margin, payor mix, service mix, revenues per employee, length of stay, cost report data (home health and hospice), days sales outstanding, net margins, and more enable advisors to quickly zero in on where you outperform your competition or, perhaps more importantly, fall short. This analysis illuminates the steps you could take (that may not bear results for a while) to increase your value.
Notably a knowledgeable advisor may already have this data on hand.
The Braff Group, for example, has access to numerous performance databases.
Moreover, we have been tracking and analyzing financial and operating performance data for our clients for more than 25 years. We have literally thousands of sector- specific data points that have been scrubbed to yield meaningful performance benchmarks.
Buyers want to know if the revenue streams they acquire will continue post-transaction. Is there a sales team in place to prevent erosion? Are there concentrations that, if lost, could greatly diminish profitability? Are revenue sources referral or consumer driven – the former being more valuable because of their predictability. Any initiatives you can take to make your revenues stickier will pay off handsomely in increased valuation.
Right off the proverbial bat, if your company is growing and you’re on the cash basis of accounting, your revenues and earnings are almost assuredly understated.
Notably, there is some measure of subjectivity in accrual- based accounting. Issues regarding revenue recognition, establishing reserves for uncollectibles, vacation pay, capitalization guidelines, and more can have a substantial impact on reported revenues and earnings. Giving buyers the opportunity to turn cash-based financials to accrual enables them to take the most conservative approaches to these calculations which can lower profitability and ultimately, valuation. Better to take the time to engage a financial adviser to convert to accrual a year or two before going to market.
It might be easier not to separate service lines, but it can be deadly if the profitability and/or attractiveness of each are different. In such cases, higher valued lines can easily be valued at the less attractive line’s comparables. Moreover, while less desirable, sometimes more value can be extracted by selling lines to different buyers. As such, separate reporting provides the greatest flexibility.
If you don’t have an obvious succession plan or haven’t invested in middle management infrastructure, you’ll want to do so – even if it cuts a bit into your profitability – because you’ll earn a higher multiple as it reduces the risk that the business will unravel post-transaction.
This question goes to the heart of why many owners decide to sell – burnout. And quite often, no amount of go-forward opportunity is enough to warrant holding on. We know. Not an easy question to answer, but nevertheless important to discuss and reflect upon.
If you do, the calculus regarding the sell vs. hold decision becomes a question of return on investment. Which is better? Increasing the value of your existing business? Or cashing in and redeploying some or all the proceeds into a new opportunity with even greater prospects.
If you’ve managed to squirrel away enough money over time and don’t need the proceeds of a sale to fund your interests in retirement, it’s entirely reasonable to forgo a deal to keep the business in the family.
But if you’d like to cash in but still give your kids the opportunity to be in the business, there are several ways to have your cake and eat it too: selling the business to your kids in the form of an installment sale that can be funded from the profits of the company; recapping it with a modest amount of debt to finance a sizeable distribution to you without overburdening the firm with risk; or selling the business outright and using some of the proceeds to fund a start-up for the kids outside your non-compete area.
Regardless, such a decision requires planning, and equally importantly, insights regarding valuation.
Developed by The Braff Group, this concept is best explained with a simple example. Take Bill Gates: the first million dollars he made assuredly held tremendous value to him, both financially and psychically.
But how about a million today? Not so much. So, once the psychic value of any increase in sale price begins to decline, the ROI of holding on for a higher multiple or another year of growth begins to fall off as well.
Moreover, the downside risk of changes in buyer preferences, unfavorable macroeconomics, reductions in reimbursement, professional liability, etc., can easily outweigh this diminished return. So, monitoring this with input from a knowledgeable advisor regarding M&A market conditions is paramount to optimize timing – for you.
Yup, a lot of questions.
Questions whose answers will change over time, right along with countless external variables that inform which sectors are hot, which are not, and which are heading in either direction.
So, even if you think you’re three to five years or more away from a potential sale, it’s never too early to begin a dialogue with an experienced mergers and acquisitions advisor on a regular basis. Like, you know, a nationally recognized firm that’s been around since 1998 and has closed nearly 400 deals like yours (just saying). Their input and guidance can ensure that you’re on the right path, at the right time, to get the best deal.
Buyers almost always obtain a quality of earnings report (QoE) as a cornerstone of their due diligence.
Sellers, on the other hand, rarely do.
Unlike an audit that essentially verifies that a company is following Generally Accepted Account Principles (GAAP) and that its income statement and balance sheet accurately portrays its then financial condition, a QoE report shows what the firm’s revenues and earnings are expected to be at the time of closing. So, unlike an audit, a QoE also reflects verified adjustments to the financial statements for items such as excess owner’s compensation, one-time expenses, startup costs for new locations or product lines, and more.
The QoE also adjusts revenues for any regulatory or compliance errors in billing, as well as known – or highly anticipated – changes in reimbursement.
It can also quantify the financial impact of any operational changes deemed necessary immediately post transaction such as changes in staffing levels, wages, or benefits packages, investments in software or infrastructure, etc.So, from a valuation perspective, the QoE is much more important than an audit as it shows the “real” EBITDA the buyer is acquiring at the time of the transaction.
While no buyer would ever admit it – and understandably so – there is a financial incentive to use the QoE to find shortfalls in EBITDA to secure purchase price reductions post letter of intent. Perhaps even more important, even if this wasn’t the case, the firm engaged to perform the review has the same incentives to challenge earnings in order to win the favor of the buyer and be rewarded with the next QoE assignment.
But here’s the thing.
When a seller obtains their own QoE report from a reputable third party prior to going to market, they send the message in a not-so-subtle way that, when it comes to aggressively challenging their financial performance, they won’t be “easy pickings.” Moreover, with greater confidence that (a) fewer shortfalls will be found in these already vetted numbers, and (b) that any challenges brought by the buyer will likely be defended vigorously, the energy to use a QoE as a price slashing weapon is substantially diminished. Moreover, when a seller obtains their own QoE, it should not only take less time for the buyer to complete their own (which they will still require), but it can also expedite the collection of certain due diligence items as the seller will already have relevant worksheets and reports at the ready. This may seem relatively minor, but with time being the enemy of all deals, the faster these often-protracted tasks are completed, the less likely some unexpected event or change in buyer sentiment will upend a deal.
Lest we forget, a seller’s QoE can also reveal real issues – often billing related – that can be fixed prior to going to market, thereby preserving EBITDA.
A corollary to the above?
One of the many things we’ve learned over the course of completing nearly 400 deals over 27 years is that, in terms of price cuts, the magnitude is always less when problems are revealed by the seller pre-LOI, than when they are discovered by the buyer post-LOI. So, even if they can’t be easily mitigated, the QoE can also be extremely valuable in identifying, disclosing, and managing gremlins lurking about that can do real damage to your final purchase price.
Now we know why a sell-side quality of earnings report can be so valuable. The question, however, is there any proof?
Well, it turns out, now there is.
Over the past two years, GF Data, a firm that analyzes M&A data for transactions below $250 million, has been comparing purchase price multiples for deals where sellers obtained their own QoE report versus those that didn’t.
Across 263 transactions, the nearly half that performed sell-side QoEs sold for an additional half turn multiple of EBITDA (on average) vs. those that didn’t include them.
It might not sound like much, but even for a $5M company with a million in earnings, that half turn converts to an additional $500k in purchase price – an ROI of 900% on a $50k QoE.
Now to be clear, we’re reminded that correlation does not equal causation. Could management teams and firms inclined to get their own review be preternaturally more sophisticated in running their business and thus be more likely to capture higher multiples? We’re sure that some of this comes into play. But here’s what else we know. In our experience, virtually every time one of our clients obtains their own QoE, they find something eminently fixable that, had they not found it, would have sent their multiples plunging. And in these cases, correlation is indeed causation.
In the end, we know that the $30k spent on a QoE report for small, simple operations up to $100k for larger more complex businesses seems like a lot before you even go to market.
After all, “my numbers are solid.”
But trust us when we say that it is extremely rare to come out of due diligence completely unscathed.
So, if you’re a prospective seller, better to recognize the value of a QoE now…than regret it later.
For those of you who are more adventurous, below is an example of how the EBITDA of a company might change from pre-audit, to post-audit, and to post-QoE.
There are a multitude of stratagems that sellers can employ to ensure they reach their goals and objectives. But there are 10 strategies in particular that – with virtually no room for error – must be initiated to maximize value in a divestiture.
For every company, there is a unique and ideal time to sell – and rarely is it when a buyer happens to pop the question.
Rather, the perfect timing arises (1) when a business begins to shift from “hyper-growth” to “mature growth” in its growth cycle; (2) when factors such as reimbursement, operating strategies, supply and demand and others contribute to favorable M&A market dynamics; and (3) when passion turns to burnout, alternative investment opportunities become attractive, the psychic value of incremental equity becomes marginal and other personal goals and objectives are consistent with a sale.
The best-prepared sellers continually monitor these three “decision spheres” to determine when they are in optimal alignment: the point at which both financial and intangible value can be maximized. The importance of this approach can’t be emphasized enough. Without question, more value is lost by mistiming a transaction – and more value gained by right-timing a transaction – than by any other miscalculation in a divestiture.
Quite simply, you can’t maximize value if you don’t define its components. Sure, you want cash. The more the better. But for virtually every seller, there are other tangible and intangible transaction elements that can create substantial additional value, value that can help distinguish one offer from another.
For example, for large, platform-sized entities with an owner or management team interested in developing the business further, extraordinary value can be created by selling to a private equity group and retaining a minority interest in the firm going forward.
With an influx of financial and other additional resources to support layer-on acquisitions and organic growth, PE-sponsored firms can grow so much that the value of a retained minority interest can sometimes exceed that of the initial deal. As such, value is derived not only by retaining an equity position but, more important, from partnering with the right private equity group.
Other examples: Many sellers assign a high value to divesting to a buyer that is likely to retain all of its key employees. This is often the case with hospital-based and not-for-profit entities. For others, timing is a crucial determinant of value, particularly when the seller wishes to pursue other business, personal or financial goals.
For C corporations, given the double taxation that occurs upon the sale of assets, extraordinary value can be created (or retained) by identifying a buyer willing to acquire stock.
Finally, while cash is king, sellers who want to maximize value will not limit their consideration to cash-only proposals. Buyers naturally want to leverage their cash on hand to complete as many, and/or as sizable, transactions as possible. Accordingly, many will bestow additional premiums to sellers willing to accept notes or stock.
Though non-cash remuneration certainly carries risk, the returns can be significant and, when carefully structured, large portions of this risk can be mitigated. Furthermore, when large gaps exist between buyer and seller regarding future performance, deferred compensation in the form of earnouts have the potential to be exceedingly valuable.
On the surface, recasting financial statements to eliminate expenses a buyer is unlikely to incur seems quite simple. In fact, therein lies the problem. On the surface it is simple. Getting beyond the surface, though, is far more complex, yet essential in maximizing value.
Miss hard to identify add-backs buried in arcane accounting principles and you can substantially understate earnings potential, a miscalculation that is compounded when these figures are subsequently applied to valuation multiples. Overstate, inflate or unsubstantiate add-backs, and you compromise credibility, which buyers, in turn, often reflect by discounting those same multiples. So recasting financials must be done aggressively and delicately at the same time, a difficult balance to achieve.
Few sellers miss the easy add-backs: excess owner’s compensation and perks, relatives on payroll, one-time expenditures and the like. Most sellers even pick up on the impact of expensing versus capitalizing equipment.
But the overwhelming majority miss out on the income statement impact of how financials are prepared (cash, accrual or modified accrual); how revenues are recognized; how billings on hold are treated; the impact of the direct write-off versus the allowance method for accounting for bad debt and uncollectibles; the impact on cost of goods sold of conducting (or not conducting) annual inventories; and the proper treatment of new start-ups, just to name a few.
It can be equally damaging to overstate add-backs by claiming adjustments that don’t hold up or are simply unreasonable. Key personnel, incentive programs, promotional activities and the like – resource investments that support the sustained growth buyers crave – don’t magically disappear post-transaction. Likewise with customer service and billing and collection overhead. While large strategic buyers have administrative infrastructures in place, it is somewhat overzealous to believe that these infrastructures consistently have substantial excess operating capacity to absorb acquisition after acquisition without having to add such personnel and other supporting resources.To maximize recast earnings and maintain credibility, adjustments of these types must be considered carefully. Moreover, sellers should not hesitate to include “negative” add-backs where appropriate – expenses the buyer will incur that they have not – as any “loss” of earnings will likely be more than offset by a valuation multiple unfettered by mistrust and increased risk.
Far too often, sellers pursue what we call “sequential presentation,” a process by which sellers pre-determine the likelihood that individual buyers will deliver maximum value, queue them up from best to least-best and approach them in order, one after another.
The theory is that best-fit buyers can be reasonably determined, and that limiting presentations to buyers one at a time reduces exposure in the market and lessens the chance that confidentiality will be breached. Interesting theory. But utterly and completely wrong.
First, with so many variables that have nothing to do with a particular seller and everything to do with a particular buyer, it is simply impossible to predict accurately which buyer will step up.
Second, rather than minimizing potential exposure, sequential presentation actually increases the likelihood that confidentiality will be breached. Unless the first buyer in queue submits and closes on the best offer (and how do you know if an offer is the best if you haven’t entertained proposals from others), time on the market expands as each new buyer is brought in. Counter to conventional wisdom, the greatest threat to maintaining confidentiality is more a function of time than a function of the number of buyers brought to the table.Given this, the only way to identify the “right” buyer for the “right” seller at the “right” time in a compressed time period is to pursue a controlled, multiple and simultaneous presentation strategy.
Typically, once a seller has identified a buyer that they believe will meet their divestiture needs, all attention is refocused on this party, forgoing discussions – at least for the time being – with other potential suitors.
This is particularly the case when sellers pursue a sequential presentation strategy. In doing so, they forgo the opportunity to develop strong BATNAs (best alternatives to negotiated agreements) other than simply not selling. Absent these BATNAs, sellers give up negotiating leverage that can prove critical in moving from a letter of intent to closing at the price and terms initially agreed to, and under the most favorable definitive purchase agreement language.
In order to maximize value, it is vital that prior to signing a letter of intent – which typically contains “no-shop” provisions barring sellers from continuing dialogue with other buyers over a defined period – sellers proactively and strategically identify, develop and queue one or more back-up buyers. While this requires a deft and sensitive negotiation touch – no buyer likes to be in second place – the payoff can be huge, and it is not at all unusual for “secondary” buyers ultimately to close a deal.
While rarely used as a negotiation tactic, amidst a backdrop of excitement, anxiety and zeal to close a deal, buyers and sellers alike often find themselves negotiating a limited number of terms – typically price – the theory being that until price is nailed down, the details can wait.
Unfortunately, absent the details there is no way to assess the real value of an offer. An “expected value” net of taxes can be worth more or less than it initially appears based on structure (asset versus stock transaction), terms (cash, notes, stock, contingent payments, etc.), balance sheet considerations (liabilities assumed by the buyer or not; assets retained by seller or not), timing, financing contingencies, owner transition requirements, non-compete terms and other intangibles that may convey value to the seller (see No. 2 on the list).
When offers are put in writing, the ante is raised, and buyers typically include some or all of the details above in their proposals. Only then can a seller begin to negotiate a transaction that maximizes value.
Perhaps the most common behavioral phenomena in mergers and acquisitions is that once a seller makes the difficult and emotionally gut-wrenching decision to sell, they immediately begin to distance themselves from the day-to-day operations of the business and focus entirely on completing the transaction as quickly as possible. Inasmuch as the principal shareholder(s) typically drive, facilitate and inspire performance, any reallocation of real or emotional resources can have a quick and deleterious effect.
Moreover, any unfavorable changes in performance between the time frame captured in the letter of intent and the final due diligence creates doubt in the buyer’s mind regarding the credibility of the original numbers as well as go-forward expectations, assumptions upon which the deal was originally crafted. Accordingly, price is often renegotiated, typically disproportionate to the downward trend. So a 10 percent reduction in performance can easily yield a 20 percent-or-more reduction in price.
As difficult as it may be, during the divestiture process, sellers can literally not afford to do anything other than continue to manage the business as if they were not contemplating a transaction.
This one can be very difficult, especially for owners who have developed strong bonds with key staff. Pursuing a divestiture strategy covertly feels like an act of bad faith, a violation of trust and disloyalty. In actuality though, keeping your plans to yourself is anything but.
The problem is that when a seller decides to divest, until they know that a potential deal is possible, who the buyer is and under what circumstances they are acquiring the firm (i.e., opening up a new market or folding into an existing operation), the seller simply has no idea what the future holds for key staff. Informing them of divestiture plans early in the process only serves to create anxiety for the very employees you care for most, anxiety that cannot be addressed or alleviated for many months.
Key employees may try to relieve their tension by confiding in others, seeking employment elsewhere or simply distancing themselves from the business, all of which can start a downward performance trend that can spiral out of control during a protracted period of the unknown. Given the impact of declining performance post letter of intent, this can destroy the opportunity to maximize value.
The above notwithstanding, buyers should recognize that in order to sustain revenue and profit streams, they must have a transition strategy in place prior to closing a deal, a plan that includes a clear identification of the employees they intend to retain post-transaction. To accomplish this, it is necessary to meet with and interview key staff at the very least prior to closing.
So how can a seller accommodate buyers’ needs and minimize the risk described? The answer lies in a staged due diligence. When deals fall apart, it is generally due to problems in financial reporting and/or regulatory compliance. Accordingly, during initial stages, due diligence can be limited to off-site review of financial records and a random review of charts (typically accomplished via virtual data rooms).
Only after the buyer has indicated that they are comfortable with these findings do they begin to expand the scope of due diligence activities – including employee interviews – which are held off until as late in the process as reasonable. At that point, the likelihood of closing is high, mitigating the risk associated with employee notification.
After the difficult process of moving from preparation to presentation to negotiation through the letter of intent, many sellers begin to fade as they enter the due diligence stage, a laborious and detail-laden point in the M&A cycle that can either make or break a transaction. So, due diligence preparation often suffers.
Certainly, sellers can make up for this by scrambling to pull together information for buyers on an ad hoc basis. But in doing so, they give up the opportunity to create goodwill, confidence and trust with buyers, intangible elements that can be extremely helpful in working through the difficulties that inevitably arise between due diligence and closing.
Don’t underestimate this point. To a buyer, sloppy due diligence raises all kinds of red flags regarding any business operations that require organization and attention to detail, notably billing, collections and regulatory compliance. On the other hand, well-prepared due diligence communicates just the opposite and inspires confidence.
As a result, some of the best-prepared sellers perform mock due diligence even prior to signing a letter of intent. Not only does this help in organizing the volumes of paperwork required in due diligence but it also gives sellers a preview of difficulties that may come up later on – and the chance to fix them before they can undermine a transaction.
If your first reaction to this point is that it is merely self-serving (we are M&A advisors), think again. Entrepreneurs are expert in building companies. Skilled intermediaries are expert in converting them to value. Very different skill sets.
That is why, regardless of their knowledge, experience and business savvy, no self-respecting CEO of a publicly traded firm would ever dream of entertaining an M&A transaction without the counsel of an experienced dealmaker, one that is well-versed in developing and initiating each of the strategies outlined here.
There is simply too much risk going it alone. Too much unfamiliar territory. Too much distraction. And most important, too much at stake – like financial security.
Given the dynamic interplay of health care economic policy, government regulations, reimbursement, therapeutic advances, and technology, it likely comes as no surprise that in health care services M&A, sectors fall in and out of favor. As the market stands today, if you ask a health care investor which areas they are targeting, you’ll likely hear one or more of the following: behavioral health, physician practices, all manner of technology enabled health care, and, for the purposes of this report, outsourced pharma services.
First off, what are outsourced pharma services?
Not such a simple question, as there are a variety of ways industry insiders define and delineate this broad category.
For simplicity, we break the market down into three major areas — Clinical Services, Supply Chain, and Commercialization.
In the clinical services bucket, we have providers focused on pre-clinical and clinical pharma development such as contract research organizations (CROs) – large scale firms that manage and coordinate activities across the drug development spectrum, clinical trials sites and networks, and functional service providers (FSPs), that among other areas, offer specialized expertise such as clinical monitoring, patient recruitment, data management and analysis, clinical safety, and quality assurance. These companies are essential partners that support moving products through the various regulatory stages with the ultimate goal of gaining approval and market authorization.
Under supply chain, we have all the functions involved in getting drug substances and finished products from development through delivery, including materials sourcing and procurement, production planning and inventory management – often the domain of contract development and manufacturing organizations (CDMOs), packaging, labeling and serialization, and logistics and distribution.
Under commercialization, services include patient and health care professional engagement, market access and payer strategy development – including interfacing with CMS and developing formularies, health economics and outcomes research (HEOR), patient hubs, medical affairs and communication, adverse event monitoring, and outcome studies.
To put it simply, ushering a drug from discovery to commercialization is a massive undertaking. The steps involved are extraordinarily complex, require highly specialized niche expertise, are loaded with data that must be monitored, cleaned, and analyzed in real time, and can be global in scope. Managing that kind of operation in-house is expensive and slow. Outsourcing lets pharma companies scale quickly and access deep expertise without building it themselves, changing an otherwise fixed cost to one that is variable. Moreover, outsourcing clinical services, notably the various aspects of conducting clinical trials, also provides the external objectivity and validation that would otherwise be questioned if performed by pharma. What’s more, as we detail below, the market is extremely fragmented (which allows for consolidation), sizeable, and growing.
No surprise, then, that private equity has noticed, pouring money into the space and driving M&A activity.
In this market report, we focus on Clinical Services.
According to a summary report on the clinical trials ecosystem produced by Market and Markets, “the global Clinical Trial Services market, valued at US$60.76 billion in 2024, stood at US$66.59 billion in 2025 and is projected to advance at a resilient CAGR of 8.9% from 2025 to 2030, culminating in a forecasted valuation of US$101.86 billion by the end of the period.” 1
Below are just a few of the primary growth drivers:
Sustained, and growing need, for drug therapies in the areas of mental health and psychiatrics – notably psychedelics, rare diseases, pediatrics, GLP-1s, and the omnipresent oncologics
Looming “patent cliffs” that, among other initiatives, will spur research and development
Goals to increase diversification in trials across age, sex, ethnicity, and race
Technology enabled initiatives to improve patient access through decentralized clinical trials
One other observation.
Under the Inflation Reduction Act of 2022, CMS can negotiate prices for certain high-cost, single-source drugs once they’ve been on the market for a set number of years. The clock starts the day the drug is first approved by the FDA — not when it launches for a second indication or formulation. After that point, the law defines a specific number of years before the drug becomes eligible for Medicare price negotiation. So, to maximize their returns before the “exclusive window” ends, pharma has tremendous incentives to identify every potential indication for an individual drug as quickly as possible. This, in turn, is likely to spur more clinical trials earlier in the drug development process.
¹Markets and Markets: https://www.marketsandmarkets.com/Market-Reports/clinical-trials-market-405.html
Clinical Differentiators
In discovery, preclinical, and clinical outsourcing, the best partners distinguish themselves not just by size or scale, but by how they integrate science, technology, and collaboration into every project. Their success tends to cluster around four key traits: expertise, execution, innovation, and partnership.
Expertise. Top-tier CROs and trial sites go deep into their therapeutic focus — oncology, CNS, or rare diseases and stay fluent in the evolving regulatory and technical landscape. They connect early-stage discovery insights to downstream protocol design, reducing trial risk and cost.
Execution. The best firms deliver on time, every time. They run highly controlled operations with proven SOPs, validated systems, and scalable infrastructure that can flex based on a client’s needs and objectives.
Technology and Data. High performers utilize digital platforms that make data capture, monitoring, and analytics seamless. They are evaluating and developing AI strategies to predict enrollment bottlenecks, automate reporting, and give sponsors real-time visibility into trial progress.
Partnership. Another differentiator is the extent to which firms work as an extension of their partners. Whether that be with the sponsor team directly, or with CROs that manage and coordinate activities, high performers communicate clearly, tailor their processes, and maintain continuity in leadership and staff across projects. Their culture is as collaborative as it is disciplined. Firms that display these characteristics will rise to the top of buyers’ wish lists.
Growth rate and pipeline: No surprise that firms with higher growth and stronger pipelines command higher multiples. But there is some nuance here. Given the discrete project nature of clinical development and trials, unless a firm is conducting a large number of trials at various stages in their life cycles, revenues – and earnings – can be extremely “lumpy.” This makes the calculation of historic trailing and projected go-forward financial performance extremely hard to determine – a factor buyers consider by either risk adjusting valuation multiples, or the earnings being multiplied, downward. So, the best-case scenario? Firms with smooth revenue streams that are trending upward and to the right.
Therapeutic diversity. Niche expertise can be extremely attractive (see below). The downside, however, is that any number of variables can upend a particular drug development focus. For example, companies that developed expertise in pain management likely saw fewer opportunities as a wave of litigation, DEA scrutiny, and tighter FDA guidance effectively froze new opioid-related development programs. The upshot? Diversification that reduces risk increases value.
Specialization. The above notwithstanding, firms that have niche expertise in attractive therapeutic domains have competitive advantages that not only create barriers to entry for competitors but also enable them to command higher pricing – both attractive attributes for buyers. Moreover, they can be extremely valuable to consolidators seeking to create a diversified portfolio of offerings per the above.
Size and scale: Akin to therapeutic diversity, larger firms, perhaps with a global footprint, that in addition to broad service offerings have fully developed clinical, operational, and marketing infrastructures are inherently less risky than smaller, owner/physician/investigator operated sites or providers, and therefore command higher valuations. It’s not that the smaller firms aren’t attractive – in fact, they are. They simply aren’t at the highest end of the valuation continuum.
Client stickiness: The “stickier” the relationship between a provider and a sponsor or other contractor, i.e. the more difficult and inefficient to engage with a different outsourcer, the greater the value.
For example, once a CRO runs a trial for a sponsor, and becomes familiar with the drug, protocol, data systems, and regulatory expectations, it becomes riskier and more inefficient for the sponsor to switch mid-trial or between phases.
Similarly, at the site level, sponsors and CROs prefer continuity in site relationships — investigators who already understand trial protocols, recruiting pipelines, and patient populations.
For FSPs, the vendor’s employees (the FSP’s specialists) often work directly in the sponsor’s systems — the sponsor’s databases, templates, SOPs, and project tools. They may report day-to-day to sponsor managers or liaisons, even though they’re employed by the FSP and often adopt the sponsor’s internal processes, attend their meetings, and function almost as in-house staff. All of which makes it extremely difficult to switch to a different vendor.
For context, it’s perhaps helpful to see what the range of multiples are in the other health care services sectors we cover. At the lower end of the range is home medical equipment providers that currently trade at 5.0 -7.0 x EBITDA less Capex.2 At the higher end of the range are behavioral health service providers which command multiples of 8.0 to 10.0 x, or more. Of course, it goes without saying that the size and individual attributes of a given provider can generate multiples well outside these ranges – both higher, and lower.
So, what do we see in outsourced pharma services?
Not surprisingly, it differs across the segments within the space. One thing noteworthy is that almost by definition, large clinical trials networks, CROs, and CDMOs not only have risk-return fundamentals that place them at the higher end of the valuation range, but they also tend to be the firms with the highest revenues and earnings. Therefore, their valuation indicators are inclusive of a “size premium” which, in and of itself, can add another 3.0 – 5.0 times EBITDA.
Below is an illustration of the ranges of value multiples we see across the outsourced pharma services continuum. As suggested above, these are rough ranges of value that can move up or down based upon company specifics.
²The subtraction of Capex from EBITDA is significant, as the resulting imputed EBITDA multiple can easily fall below 5.0. For example, if EBITDA is $10M and Capex is $5.0M, the EBITDA less Capex that is subject to the multiple range quoted above is $5.0M. At a 7.0 multiple, the value would be $35M. But as a function of EBITDA, the multiple falls from 7.0 to 3.5.
While the post-COVID slowdown on new drug development, reduced access to venture capital funding, and price controls courtesy of the Inflation Reduction Act have, among other developments, become part of the M&A calculus, for all the reasons delineated above, outsourced pharmacy remains innately attractive.
As we have seen in virtually all the sectors we cover, it has been the macroeconomic environment that has had the most impact on deal flow.
Following COVID, from mid-2022 through 2024, the macroeconomic environment was characterized by (a) economic instability, (b) staffing challenges, (c) the fallout from unprecedentedly high M&A volume and valuations in 2021, (d) inflation, and (e) the Fed’s response to it by raising interest rates. As a result, buyers understandably pulled back globally, and across all industries. But over that 30-month slowdown, unspent private equity capital and acquisition demand naturally began to build. So, it’s been a standoff between less than favorable macroeconomic conditions and buyer demand. Thus far in 2025, however, it appears that demand has begun to overcome the macroeconomics, as deal volume shows real signs of recovery. What’s more, the Fed lowered interest rates in September and October, bringing the range to 3.75 – 4.0%, the lowest in three years (and down from a peak of 5.4% which was in place for much of 2024). And with President Trump getting the opportunity in May to replace the current Fed Chair, Jerome Powell, with whom he’s had a very public dispute regarding lowering interest rates, we may see additional cuts next year.
As such, there’s good reason to believe that the uptick in deal making in 2025 will continue in 2026, which, when combined with the tailwinds described in this report, should boost opportunities for outsourced pharma companies.
As the Decision Spheres move towards the bullseye, your company moves closer to the optimal time to divest.
Imagine the bullseye of a target, designating the perfect time to sell to maximize both financial and professional returns. Now imagine three “decision spheres”—the three most important variables that drive this timing. When all three spheres converge over the bullseye, well, the moon is in the seventh house, and Jupiter’s aligned with Mars.
This first decision sphere is pretty intuitive. How vibrant is the M&A market for your niche sector, i.e., “Is it a good time to sell?”
Does the sector meet a pressing need, supported by current and anticipated health care economic policy, which, in turn, portends a sustained run of both utilization and funding?
Are private equity investors blanketing the space, funding consolidations that can rapidly accelerate deal flow and sector visibility?
Are there a substantial number of buyers competing for high-quality providers?
Do they come from different corners of the market, with varying strategic goals and objectives, increasing the likelihood that the needs of one or more buyers will line up nicely with your unique strengths and characteristics?
Are there any visible risk factors that could quickly derail the industry?
Buyers typically adjust their valuations to reflect a seller’s anticipated growth, or decline, respectively.
In a growth situation, then, the question is whether or not the bump in the multiple adequately reflects this growth.
This depends on where the company sits on the growth curve.
For simplicity’s sake, we categorize growth into three bands:
Hyper-growth. Although it can occur any time, hyper-growth often begins around a third of the way towards company maturity, and tails off by the mid-stage. It can be very high — as much as 25% to 50% or more, but is generally difficult to sustain for more than a few years.
Growth. Often coming on the heels of hyper-growth, we’re talking about growth that is out-pacing the market as a whole (which means a company is grabbing market share from its competitors). Typically, this ranges somewhere between 15% and 25%. Unlike hyper-growth, the most creative, innovative, and nimble companies can remain in the growth stage for many years.
Market-to-No Growth. As the name implies, this occurs when a company is growing at, or below, the growth rate of their sector. In a burgeoning health care market, “natural” market growth can be as much as 15% or more. So between a rate of 0% and 15%, a company in this stage is either holding its market share or seeing it slip.
So which band is optimal?
Market growth is already baked into health care valuation multiples. So in particularly vibrant segments, sellers don’t receive much, if any, bump in their valuation multiples, even if they’re growing between 10-15% per year.
What about hyper-growth? Of course, buyers love that kind of growth, but they know it’s not likely to last. You’ll be rewarded with a nice increase in your multiple but in virtually all cases, not enough to fully capture the go-forward opportunity. Alternatively, if you’re willing to wait as little as a year, even if your growth slows a bit, the jump in earnings is likely to far outweigh what is likely to be a modest reduction in your growth adjusted multiple.
In the end, it’s when you’re in the growth band—when you’re growing between 15–25% per year, when you’re still gaining market share, and when it’s possible to sustain this rate for several years—that a company can realize the best combination of elevated multiple and income.
Its positioning is personal, and it’s frequently rooted in some form of burnout. You could continue to grow and compete—but you simply don’t want to.
Perhaps you have other business interests which may provide better financial and/or professional returns. There may be conflict with your partners—business or life. Breaking up a partnership—or a marriage—often triggers a need to divest. Maybe there is an ailing loved one that requires more of your time and attention.
One personal inventory item merits particular attention, not only because it is rarely considered, but because it can be a defining pivot point.
The Psychic Value of the Incremental Dollar. Developed by The Braff Group, this Personal Goals and Objectives variable is most easily explained with a simple example. Take Bill Gates: we can all imagine that the first million dollars he made held tremendous value to him, both financially and psychically. But how about a million dollars today? Not so much. In fact, it’s easy to imagine that the psychic value of an incremental dollar to Bill Gates today is zero.
How does this fit in with our construct?
Quite simply, once the psychic value of any increment in the selling price of your business begins to decline — and that figure will differ widely for each individual—the value of holding on for a higher multiple or another year of growth begins to diminish as well. Every year you operate beyond this point, you take on the day-to-day risk of reductions in reimbursement, regulatory scrutiny, professional liability, etc., in exchange for very little psychic return. This alone can place you squarely in the “sell-zone.”
Alas, the world is rarely kind enough to present you with a circumstance in which all three decision spheres are lined up perfectly over the selling target.
The trick, then, is to keep your eye on each for the direction—and velocity—it’s headed and use this insight to narrow down the time frame when you’re likely to have the greatest convergence of decision spheres around the bullseye.
Not long after the year began, mergers and acquisitions in general, and health care in particular, faced a new set of headwinds. Tariffs which not only created economic uncertainty, but also gave rise to concerns regarding increased inflation, which, in turn, gave the Fed pause to lower interest rates. And then the threat – and eventual passage – of substantial cuts in Medicaid. As such, an already frazzled buyer community, shell shocked by more than three years of a dealmaking slowdown, found themselves with new things to worry about.
So, in the health care services M&A world, it continues to be a battle between less-than-ideal macroeconomic conditions and pent-up acquisition demand.
Well, based upon (a) our proprietary transaction database, (b) annualized mid-year results, and (c) well-informed anecdotal observations, it would seem that at least for the time being, acquisition demand has the edge – slightly.
At the current pace, aggregate sector deal volume in 2025 is trending up 11% vs. 2024. What’s more, the annualized figure is only 3.75% off the total deals completed in 2019 – the last year before COVID and its repercussions distorted deal flow.
On a quarterly basis, while Q2 was down vs. Q1, it should be noted that Q1 produced the highest tally since the fourth quarter of 2023 and Q2 is nevertheless tied with the third highest output since the fourth quarter of 2022.
Now one could posit that Q2 better reflects the headwinds suggested above, but based on our own anecdotal observations, it’s not so clear. Buyers have become more aggressive, not only with respect to demand, but also pricing in certain sectors. Moreover, more deals that fell apart over the past few years at the last minute due to buyer trepidation are now making it to the finish line.
Health care staffing posted a 50% gain over the first quarter of 2025.
Even the Medicaid sector produced 2nd quarter gains of 22%. It appears that there is some optimism that Medicaid cuts will not negatively impact certain health care service sectors as much as previously thought. Moreover, many of the cost cutting provisions in Medicaid do not go into effect until 2027 and 2028, giving many states substantial opportunity to craft their own strategies to mitigate the potential fallout.
Amidst a proposed cut of 6.4% in Medicare certified home health reimbursement rates versus a 2.9% increase in hospice, the hospice space has risen to the top of many buyers’ wish lists. In fact, two large deals for Agape Care Group and Paradigm Health have recently been disclosed.
For much the same reason (as an option to dodge cuts in Medicare home health), private duty deals are trending at double last year’s output.
And after being quiet for several years, the autism space is once again garnering outsized attention.
So, the big question is will these first half numbers hold up in the second half of 2025? Given the many times M&A was on the precipice of a big rebound only to fizzle out on unexpected developments, it’s easy to dismiss these early results. That said, we are cautiously optimistic that 2025 will wind up being the third consecutive year of modest, but nevertheless meaningful, increases in deal flow. And with a stabilized tariff environment and the possibility of long-awaited cuts in interest rates¹, you don’t have to don rose-colored glasses to anticipate that this steady improvement will continue in 2026.
¹Regardless of your political convictions or stance on the interest rate environment, it is noteworthy that President Trump, who has roundly criticized Jerome Powell, the current Chairman of the Fed, for not lowering interest rates, will have the opportunity to appoint a new chairman in May of 2026.