Financing Healthcare’s Next Deal Cycle

Healthcare financing is entering a new phase. Capital has not returned to the unusually inexpensive conditions that characterized the years before monetary tightening, but the market is no longer frozen. Private equity firms, strategic buyers, hospitals and healthcare-services companies are once again pursuing acquisitions, refinancing liabilities and investing in growth. The difference is that financing is now being allocated much more selectively. Scale, profitability, reimbursement visibility and cash-flow conversion increasingly determine which businesses can access competitive capital and which remain trapped under expensive debt.

That distinction matters because healthcare’s reputation as a defensive industry can conceal substantial differences in credit quality. A diversified hospital system with strong liquidity and recurring patient demand is a fundamentally different borrower from a highly leveraged physician-practice platform, early-stage biotechnology company or labor-intensive staffing provider. Demand for healthcare may be structurally resilient, but the businesses delivering it remain exposed to wages, drug costs, reimbursement changes, regulatory scrutiny and rising interest expense.

The resulting market is not defined by either a financing boom or a financing crisis. It is a two-speed capital environment. High-quality companies can attract strategic buyers, private credit funds, banks and public-market investors. Less profitable borrowers must accept higher spreads, contribute more equity, monetize assets or postpone transactions. The next healthcare deal cycle will therefore be shaped as much by balance-sheet capacity and financing structure as by demographics or underlying demand.

1. Healthcare Deal Value Is Rebounding, but the Market Has Not Returned to Its Peak

Healthcare transaction value across the Americas is expected to reach approximately $281 billion in 2026, up roughly 30% from $216 billion in 2025 and approximately 80% from the $156 billion recorded in 2024. The rebound is meaningful, particularly after two subdued years, but projected 2026 activity would remain below the exceptional levels reached in 2019 and 2021, when transaction value totaled $357 billion and $377 billion, respectively.

The historical pattern illustrates how sensitive healthcare M&A remains to financing conditions. Deal value climbed from $126 billion in 2017 to $357 billion in 2019, before falling to $222 billion in 2020. Activity then reached a record $377 billion in 2021 as inexpensive debt, abundant sponsor capital and strong public valuations supported major transactions. The subsequent reset was abrupt: deal value declined to $211 billion in 2022, recovered slightly to $222 billion in 2023 and fell again to $156 billion in 2024.

The expected 2026 recovery therefore represents a reopening rather than a return to the previous cycle. PwC expects healthcare dealmaking to be supported by portfolio repositioning, corporate carve-outs, take-private transactions and the need for pharmaceutical companies to replenish development pipelines. However, buyers remain disciplined about asset quality, regulatory risk and the reliability of projected synergies. Financing is available, but underwriting standards make it more difficult to use leverage to compensate for aggressive purchase prices.

There is also a growing distinction between transaction count and transaction value. A relatively small number of large pharmaceutical, biotechnology or healthcare-services deals can significantly increase annual capital deployment even when overall deal volume remains stable. For investors, this means headline transaction value should not be interpreted as evidence that financing conditions have normalized for every part of the market.

2. North America Remains the Center of Healthcare M&A

Healthcare M&A remains heavily concentrated in developed markets with deep pools of institutional capital, large healthcare systems and established sponsor ecosystems. In the first quarter of 2026, North America accounted for 436 healthcare transactions, including 408 in the United States and 28 in Canada. Europe recorded 247 deals, while Asia accounted for 92.

The regional distribution demonstrates the importance of the United States to global healthcare financing. U.S. transaction activity alone exceeded the combined total across Asia, Australia, South America, Africa and the Middle East shown in the chart. Europe remains an important secondary market, supported by pharmaceutical assets, medical-device manufacturers, contract research organizations and fragmented provider sectors. However, the United States offers a distinctive combination of large enterprise values, deep private-equity penetration and extensive private-credit capacity.

North American activity is itself geographically diverse. The Southeast led the named U.S. regions with 88 transactions, followed by the Mid-Atlantic with 76 and the West Coast with 71. The Great Lakes region recorded 46 deals, while other U.S. regions collectively accounted for 127.

The Southeast’s position reflects several intersecting trends, including population growth, expanding hospital networks, ambulatory-care investment and continued consolidation of physician, dental and specialty-care platforms. The Mid-Atlantic combines large hospital systems with pharmaceutical, biotechnology and research clusters, while the West Coast remains central to biotechnology, digital health and medical technology.

Geographic transaction volume also reflects the fragmented nature of U.S. healthcare delivery. Many acquisitions remain regional rather than national because referral networks, payer contracts, clinical labor availability and state regulation can create substantial local-market differences. A healthcare business may have strong demand at the national level but still require highly localized underwriting.

For lenders, geographic concentration can create both advantages and risks. Local density can improve referral capture and operating efficiency, but excessive reliance on one payer, hospital network or state reimbursement framework can undermine debt capacity. Consequently, financing decisions increasingly require a granular understanding of regional market conditions rather than a broad assumption that healthcare demand is universally resilient.

3. Healthcare Services Drive Volume, but Not Necessarily Capital Value

Healthcare services represented the largest share of first-quarter 2026 transaction volume, with 444 deals. Pharmaceuticals and biotechnology followed with 178, healthcare devices and supplies with 116, and healthcare technology systems with 91.

Healthcare services accounted for more than half of the 829 transactions represented in the chart. This reflects the extraordinary fragmentation of physician practices, outpatient providers, home-health agencies, behavioral-health operators, dental groups, laboratories and other service businesses. Many of these markets remain attractive for buy-and-build strategies because acquisitions can create regional density, centralized administrative functions and stronger negotiating positions with suppliers and payers.

However, high transaction volume does not necessarily translate into low financing risk. Healthcare-services businesses are frequently labor intensive, dependent on clinician retention and exposed to reimbursement pressure. Their reported EBITDA may also include anticipated acquisition synergies or adjustments that do not immediately convert into cash flow. Lenders must therefore evaluate whether a platform’s margin expansion comes from sustainable operating improvements or from optimistic pro forma assumptions.

Pharmaceutical and biotechnology transactions have a different financing profile. Large pharmaceutical companies often fund acquisitions with internal cash, corporate bonds or bridge facilities, while development-stage biotechnology targets may have little or no EBITDA. Valuation is instead based on intellectual property, clinical milestones and probability-adjusted future revenue. The first quarter of 2026 saw a sharp acceleration in biotechnology transaction value as large pharmaceutical companies sought new products ahead of major patent expirations. Reuters reported approximately $84 billion of biotechnology deals during the quarter, nearly double the year-earlier total.

Medical-device and supply companies generally provide more conventional industrial-style credit profiles, including recurring consumables, installed equipment bases and measurable operating margins. Healthcare technology can offer higher growth but also carries software execution, customer-retention and interoperability risks. Each subsector therefore requires a different interpretation of leverage, valuation and debt capacity.

4. Valuation Discipline Is Creating a Strategic-Buyer Advantage

Reported healthcare EV/EBITDA multiples have been volatile across both private-equity and strategic transactions. Private-equity multiples declined from 15.3x in 2025 to 10.7x in 2026, while strategic multiples increased from 9.0x to 13.4x.

This represents a notable reversal. Private-equity buyers paid higher median multiples than strategic buyers in 2022 and 2025, and the two groups were closely aligned in 2023. Strategic multiples then rose sharply to 20.9x in 2024 before falling in 2025 and recovering in 2026. Private-equity multiples, by contrast, have generally trended lower since peaking at 17.6x in 2023.

The divergence reflects differences in both transaction mix and acquisition logic. Strategic buyers may justify higher valuations where a target provides valuable intellectual property, geographic reach, product capabilities or substantial cost synergies. A corporate acquirer can also finance a transaction using balance-sheet cash or investment-grade debt, reducing dependence on the leveraged-finance market.

Private equity must generally generate returns through a combination of EBITDA growth, deleveraging and exit value. Higher interest expense weakens all three components by reducing free cash flow, slowing debt repayment and increasing the risk that exit multiples fall below entry levels. Sponsors are consequently more reluctant to pay premium valuations unless they have strong confidence in operational upside.

The EV/revenue data reinforce this point. Strategic buyers paid a reported 3.9x revenue in 2026, compared with 2.7x for private equity. This was the largest strategic premium in the five-year series.

Revenue multiples require particularly careful interpretation in healthcare. Two businesses with comparable revenue can have dramatically different profitability, reimbursement exposure and capital intensity. A software company with recurring subscriptions cannot be evaluated on the same basis as a hospital operator, clinical laboratory or medical distributor. The increased strategic multiple may therefore reflect a greater concentration of high-growth pharmaceutical, biotechnology or technology assets rather than a broad increase across healthcare.

Nevertheless, the valuation gap signals a potentially important feature of the coming market: strategic acquirers may have greater capacity to win premium assets, while sponsors focus on carve-outs, operationally complex situations and smaller platforms where disciplined entry prices can still support target returns.

R.L. Hulett’s Q1 analysis also indicates that private-equity buyers remained highly active by transaction count even as reported sponsor valuation multiples declined. This suggests that private equity is not withdrawing from healthcare. It is pursuing transactions at a different price point and with a stronger emphasis on downside protection.

5. Dealmakers Expect More Activity, but Not a Return to Excess

Industry sentiment is broadly constructive. In KPMG’s 2026 healthcare and life-sciences investment survey, 67% of respondents expected their firms to increase transaction activity, including 31% anticipating growth of 1% to 10%, 30% anticipating growth of 10% to 20%, and 6% expecting an increase greater than 20%.

Only 5% expected deal volume to decline, while 28% anticipated little change. Expectations for valuations were more moderate. Approximately 51% expected valuations to increase, but most of that group anticipated an increase of only 1% to 10%. Thirty percent expected valuations to remain approximately unchanged, and 18% expected some degree of decline.

This combination is constructive for transaction activity. Buyers and sellers appear increasingly willing to transact, but neither group expects a broad return to extreme valuation expansion. Modest valuation growth can help narrow bid-ask spreads without undermining underwriting discipline.

The outlook is also consistent with broader corporate sentiment. KPMG’s 2026 CEO survey found that 63% of large U.S. chief executives planned to actively pursue dealmaking during the year, even though policy uncertainty remained a central concern.

Healthcare has several structural catalysts that can support transactions even in an uncertain economy. Pharmaceutical companies face patent expirations and must acquire pipelines. Hospitals need scale, outpatient capacity and technology investment. Private-equity firms must deploy capital and find exits for mature portfolio companies. Healthcare-services businesses continue to consolidate fragmented local markets.

The question is not whether strategic demand exists, but whether financing structures can support agreed valuations without placing excessive pressure on post-close cash flow.

6. Cost of Capital Has Replaced Capital Availability as the Central Constraint

KPMG’s survey shows that valuation and financing concerns remain prominent obstacles. Thirty-six percent of respondents ranked high valuations as the most impactful deal headwind, while another 30% ranked them second. Cost of capital received a more distributed set of responses, including 19% ranking it first, 20% second and 30% third.

Inflation and interest rates were viewed as somewhat less immediate than valuation and cost of capital, but they remain relevant. Approximately 7% ranked them as the most impactful headwind, 17% placed them second and 24% third. Another 26% ranked them fourth and 25% fifth.

This distribution suggests that dealmakers are no longer responding to interest rates as a standalone shock. Higher rates have become embedded within valuations, financing costs and return requirements. The market’s focus has shifted from whether rates will rapidly normalize to whether individual transactions can work under the prevailing cost of capital.

That distinction is critical. A reduction in benchmark rates can improve transaction economics, but the benefit may be offset by higher credit spreads, lender fees, conservative EBITDA adjustments or required equity contributions. Highly leveraged healthcare businesses also face the challenge of refinancing debt issued before rates increased. Even where maturity extensions are available, the new debt may carry substantially higher interest expense.

For hospitals, the financing constraint is broader than acquisition debt. Providers must continuously fund facilities, equipment, information technology, outpatient expansion and physician recruitment. Kaufman Hall has noted that revenue growth since 2021 has been much stronger in outpatient settings than inpatient care, reinforcing the need for health systems to reallocate capital toward ambulatory infrastructure and partnerships.

7. Private Credit Is Supporting Transactions, but Leverage Remains Controlled

Private credit has become a central source of financing for healthcare acquisitions, particularly where borrowers value speed, confidentiality and certainty of execution. The attached leverage data show that average total leverage for new private-credit issuance remained in a relatively narrow range throughout 2025.

Total leverage began at 4.9x in December 2024, declined to 4.8x in February and March 2025, returned to 4.9x in April and May, and then fell to 4.7x from July through October. It recovered to 4.8x in November and 4.9x by December 2025.

The narrow 4.7x-to-4.9x range indicates that private-credit lenders remained willing to finance transactions but did not broadly relax leverage standards. The late-year recovery suggests stronger competition for attractive transactions, yet it does not resemble the aggressive leverage expansion associated with previous credit peaks.

Houlihan Lokey’s spring 2026 analysis found that sponsors contributed an average of 59% of LBO financing in the first quarter, down from 62% in the previous quarter but still representing a substantial equity commitment. That structure limits lender risk and provides borrowers with more capacity to absorb volatility, although it also raises the return burden on sponsors.

Private credit is especially suited to healthcare because lenders can customize covenants, acquisition facilities and delayed-draw structures for buy-and-build platforms. They can also underwrite complex reimbursement or regulatory situations that may be difficult to place in syndicated markets. However, flexibility should not be confused with unlimited risk tolerance. Lenders remain focused on free-cash-flow conversion, interest coverage, physician retention, payer concentration and the quality of EBITDA adjustments.

Healthcare’s defensive demand characteristics may support leverage, but they do not eliminate execution risk. A platform financed at nearly 5x EBITDA can become stressed quickly if wages increase, reimbursements lag or anticipated acquisitions fail to close.