2025 Year End M&A Update

In Q4 2024, in the Braff Report titled “2025 is Shaping Up to Be a Banner Year: Here’s Why,” we laid out how, after a near three-year slowdown, several factors were converging to boost M&A substantially in 2025.

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.

Interest Rates Did Not Fall as Expected

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.

Tariffs Created Uncertainty

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.

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Health Care Services

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.

Medicaid and Affordable Health Care Cuts

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).            

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The Impact on Health Care Services M&A

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.

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Outlook

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.

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