Health Care Services 2025 Update

The Standoff Between Macroeconomics and Buyer Demand

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.

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