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Healthcare Investors Say Pace of Market Activity to Continue, but 2020 Elections May Impact Investment Outlook

Healthcare Investors See Strong Market Activity in 2020

-- Healthcare IT continues to generate most investor interest for FY 2020 as well as pharma/biotech and behavioral health -- Respondents see reduced investment risk in healthcare & life sciences sector in 2020 vs 2019

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Healthcare and life sciences investment professionals believe that deal volume will grow in most sectors in 2020 compared with 2019, but the coming elections could impact the investment outlook, a KPMG LLP survey found.


“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,” said Carole Streicher, deal advisory leader for KPMG’s Healthcare and Life Sciences practice. “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.”


Only 23 percent of life sciences investors surveyed characterize the sector as in a “bubble,” a drop from 48 percent a year ago, according to the 2020 and 2019 KPMG Health Care & Life Sciences Investment Outlook, respectively. (Click here to see the 2020 report.) Among healthcare investors surveyed, 50 percent viewed the sector as in a bubble in 2019 and that fell to 39 percent for 2020. In 2020, 51 percent of healthcare investors surveyed see strong or moderate fundamentals (up from 25 percent from 2019), and 42 percent of life sciences investors see the same (up from 20 percent from 2019).


Nearly half of investors surveyed anticipate that the 2020 election could have a potentially negative impact on investment activity in healthcare (48 percent) and life sciences (47 percent). Only 19 percent of investors surveyed expect the election leading to increased investment in healthcare, and 13 percent of investors surveyed said the same for life sciences.


“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,” said S. Lawrence Kocot, national leader of KPMG’s Center for Healthcare Regulatory Insight. “The acceleration of U.S. healthcare spending represents both an opportunity and a risk for healthcare investors.”


Popular subsectors and drivers of M&A activity
Healthcare IT/revenue cycle management was seen as generating the most investor interest (30%), topping drug makers (pharma/biotech) (24%), but behavioral health and home/hospice care also drew considerable interest (both 23%) of those surveyed. Hospitals and health systems drew interest from only 8 percent of those surveyed, lagging managed care companies at 15 percent. Respondents were given three choices of sectors that generated the most interest.


Cost consolidation/economies of scale was selected among the biggest drivers of merger and acquisition activity (58%), followed by accretive acquisition strategies (34%), and changing payment models as leading factor (31%), according to the respondents, who were asked about their top three choices of catalysts for M&A.


“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.” said Kristin Pothier, global and national strategy leader for KPMG’s Healthcare and Life Sciences practice. “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 2020 KPMG Health Care & Life Sciences Investment Survey (click to see the full report) surveyed 333 healthcare and life sciences investment professionals in an online survey in September and October 2019. Respondents were finance, strategy and c-suite executives from corporations, health systems, private equity firms and investment banks.  

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KPMG LLP
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