Pharma, Biotech Continue To Drive Private Equity Dealmaking


Overall deal volume and capital invested in healthcare dipped in the first half of 2023. Nonetheless, the pharmaceutical sector stayed active.

Deirdre Baggot, Kevin Wistehuff, Luke Marazzo, and Kirah Goldberg

7 min read

The uncertainty that hung over the economy during the first half of 2023 seemed to have a cooling effect on investments in healthcare. An Oliver Wyman analysis showed a sharp decline in the number of private equity-backed healthcare deals, invested capital, and deal size compared to the past two years.

The number of deals — mergers and acquisitions, rounds of financing, and buybacks— fell approximately 34% during Q1 and Q2 of 2023 compared to the same period in 2022. We also found that the proportion of deals in each of the four industry segments was stagnant compared to previous years, further supporting the notion that there’s a reduced appetite from private capital investors. The outlier was the devices and supplies segment, which saw a jump in deals. Bolstered by transactions in provider networks, behavioral health, and home health, the deal volume for the healthcare services segment remained flat during the first half of 2023 compared to the same period last year. Specifically, there was an uptick in home-based care deals towards the second quarter of 2023 potentially signaling a rebound in deal activity. And although pharmaceutical and biotechnology saw a decline in deals, we anticipate that segment will continue to draw heavy interest as exciting new therapeutics make their way through the pipeline.

Drop in Deal Volume

Like deal volume, invested capital trended down during Q1 and Q2 of 2023, with the medical technology systems segment experiencing the worst of it — dropping from roughly $26 billion in the first half of 2022 to only $3 billion during the same period in 2023. A healthy portion of that decline is attributed to the $17 billion buyout of Athenahealth by Bain Capital and Hellman & Friedman in the first quarter of 2022. No comparable deals have happened thus far in 2023. As a result, the pharmaceuticals and biotechnology segment accounted for nearly 54% of invested capital deployed during the first two quarters of 2023. Notably, about $2.5 billion of the total capital invested year-to-date came from New Mountain Capital’s acquisition of PerkinElmer's applied, food, and enterprise services businesses.

Invested Capital Declined, Too

Similarly, the average deal size fell for the entire industry. The pharmaceutical and biotechnology segment rebounded slightly while medical devices and supplies were flat.

Average Deal Size

Small-Scale Investments Lead the Way

Since 2016, investors have eyed smaller deals, with more than 50% of transactions with reported value falling under the $25 million range. The pharmaceuticals and biotechnology sector led all other industry segments in deal size during the first two quarters of 2023. As of the end of June, nine of the top 20 reported transactions by deal value were in the pharmaceuticals and biotechnology segment, six were in the medical technology systems segment, four were in healthcare services, and one was in the healthcare devices and supplies segment.

Smaller Deals Lead the Way

Valuations Moderating

Across industries, median enterprise value-to-revenue multiples in North America soared in 2021 but have been coming down since 2022. We note a similar drop in median EV-to-EBITDA multiples which peaked in 2022. For the health and life sciences industry, median EV-to-EBITDA rose slightly in the first half of 2023 over the prior year but remains down from its peak in 2021. As that trend continues, we expect competition for realistically priced targets to increase. Interestingly, across industries, the amount of unspent cash — so-called dry powder — has been allocated to buyout and growth strategies — a combined 60% of total dry powder as of July 2023. This suggests that despite record-high multiples, investors were able to identify opportunities for capital allocation and that there seems to be less storage of capital for future investments.

This previous Oliver Wyman Health article spotlights a handful of strategies that private equity firms may enlist over the next year. We will continue to assess and report on changing market dynamics throughout the year.

To learn more contact Matthew Weinstock, Senior Editor, Health and Life Sciences.