Perspectives on the current deal environment

• Market activity. Participants expressed mixed-optimism at HPE NYC. Forty-six percent of attendees polled believed deal activity would be “about the same” over the next 12 months, while 42% believed it will improve. Panelists leaned more optimistic as they pointed to growing market activity over the last year and an increase in the deal pipeline through 2025.
• Obstacles to healthcare PE transactions. Both panelists and attendees identified the lingering buyer-seller valuation gap as a major barrier facing Healthcare PE investors; 55% of attendees pointed to that valuation disconnect as the biggest challenge to successful deal executions. According to panelists, the gap is more pronounced in sectors where the lack of recent trades has made it particularly difficult for buyers and sellers to agree on valuations.
• Pharmaceuticals. Panelists addressed concerns over margin erosion and possible disruptions to pharmaceutical accessibility. The pharmaceutical industry is adjusting to potential changes in patient access to drugs, including a push to direct-to-consumer channels. That movement has begun and continues to trend.

“We are optimistic about healthcare in the current market, where deals are getting done. We are seeing quite a bit of deal flow in the third and fourth quarters of 2025 and look forward to continued market activity into next year.” – Ira Coleman, chairman of McDermott Will & Schulte

Emergence of AI in the healthcare space

• Change management is key. Panelists emphasized the need for a strategic approach to AI. Technology alone is insufficient; leadership buy-in and acumen at portfolio companies is essential for AI to positively impact the healthcare industry. The overall sentiment was that companies must be ready and capable of integrating and adopting AI tools to ensure effective adaptation.
• Seeing efficiency gains. AI is still in the early stages of adoption through most of the industry. Gains are mostly seen today in the back office, but the pressure on healthcare businesses to improve patient outcomes and lower costs will lead to more use of technology and AI in the future.
• Clinical applications. As of now, panelists noted limited applications for AI in clinical settings. At least one panelist, however, noted that we are starting to see early use in some specialties, highlighting how some studies have shown the potential of AI in detecting pre-cancerous legions in digital dermoscopic images, for example.

Ongoing trends in the healthcare private equity market

• Rural healthcare. Industry leaders addressed the potential of rural health as a catalyst for innovation and value creation. As states with rural populations show growing interest in private-sector partnerships, speakers noted that many are exploring tech-enabled care delivery models and financial structures that balance costs across care sites — using stronger-performing services to support those with thinner margins.
• Physician practice management (PPM’s). Panelists highlighted the potential for PPM’s to reenter the market, especially with a focus on de novos rather than roll-ups. The adoption of more tech-enabled services by PPM’s could also drive margin improvements.
• Creative deals. Industry leaders stressed a shift toward more complex structuring of today’s deals, with creative earnouts and innovative arrangements becoming increasingly common. At the same time, speakers noted that private credit is taking on a growing role in financing healthcare deals, bringing higher costs of capital and a focus on alpha creation. There was also discussion about partnering with payers and providers to develop innovative capital deployment strategies that solve key challenges for large strategics and mitigate downside risk.

Conclusion

HPE NYC 2025’s lively and thought-provoking discussions provided a variety of perspectives on the state of healthcare private equity along with insightful approaches to potential investments.

As always, we look forward to continuing the dialogue with our clients and partners. Please reach out to explore any of these themes further.