Healthcare M&A 2025

Introduction

Despite a sense of optimism heading into the year, 2024 was largely a disappointment for healthcare M&A. While the broader global M&A landscape showed mixed signs with a 10% year-over-year uptick in deal value and 14% year-over-year decrease in announced deal volume, the healthcare sector lagged behind. According to data from LSEG, announced M&A deal volume and value within the healthcare sector declined approximately 13% and 19%, respectively, compared to 2023. Despite this, there are several factors in favour of healthcare M&A in 2025 that give reason for hope. In particular, portfolio gaps, the availability of capital, product innovation, novel deal structures and improving IPO markets are all expected to drive healthcare M&A in 2025, even in the face of macroeconomic and regulatory uncertainty, including potential tariffs and cuts in healthcare spending.

Healthcare M&A in 2024

The lacklustre year of healthcare M&A in 2024 was underscored by a further decline in the number of “mega-deals” taking place (defined as transactions with a value in excess of USD10 billion). Only three mega-deals were announced in 2024, one of which was subsequently abandoned. This continued a downward trend from the decade-long peak in 2021, in which ten mega-deals were announced. Part of the reluctance to engage in large transactions was driven by the concern surrounding regulatory scrutiny, as healthcare M&A continued to be a focus of government agencies in 2024. For example, in November 2024, the United States Department of Justice sued to block UnitedHealth Group’s previously announced USD3.3 billion acquisition of Amedisys, citing anti-competitive concerns for the home health and hospice care markets and potential negative impacts on patients, insurers and nurses.

In the face of this regulatory environment, coupled with inflationary concerns, high interest rates and significant uncertainty surrounding the presidential election, many of the transactions announced in 2024 involved strategic acquisitions by companies that have made M&A a core aspect of their growth strategy.

Pharmaceuticals and biotech

Despite an overall challenging year for healthcare M&A, certain subsectors continued to show relative strength, with pharmaceuticals and biotech being the bright spot of the sector. In fact, pharma and biotech accounted for almost 60% of the total announced healthcare M&A deal value for the year. This strength continued to be driven by the patent cliff and large companies looking to strengthen their therapeutic pipelines and diversify their portfolios by acquiring late-stage companies, particularly in the fields of oncology and inflammation/immunology.

AbbVie was a prime example of this phenomenon, announcing four more acquisitions of varying sizes in 2024. These included Landos Biopharma (USD137.5 million), Celsius Therapeutics (USD250 million), Aliada Therapeutics (USD1.4 billion) and Nimble Therapeutics (USD200 million). Novo Holdings’ strategic acquisition of Catalent Inc, a leader in biopharmaceutical manufacturing and supply, was by far the largest deal of the year in all of healthcare M&A, valued at over USD16.3 billion. Other notable deals included Gilead Sciences’ acquisition of CymaBay Therapeutics, announced in February 2024 (USD4.3 billion), Vertex Pharmaceutical Incorporated’s acquisition of Alpine Immune Sciences, announced in April 2024 (USD4.9 billion), AstraZeneca’s acquisitions of both Fusion Pharmaceuticals (USD2.2 billion) and Amolyt Pharma SAS (USD1 billion), and Biogen’s acquisition of Human Immunology Biosciences (USD 1.8 billion).

Healthcare equipment and supplies

The healthcare equipment and supplies subsector also saw significant deal activity, accounting for approximately 24% of all announced deal value in the healthcare sector, with companies continuing to focus on innovation in MedTech and digital health.

The most notable transaction in the space was Johnson & Johnson’s acquisition of ShockWave Medical, a medical device company specialising in cardiovascular treatments, announced in May 2024 and valued at approximately USD13.1 billion. Later in the year, J&J announced another acquisition in the space, acquiring V-Wave Ltd for the price of USD1.7 billion. These acquisitions built on J&J’s acquisition of Abiomed and Laminar in previous years and further strengthened its position in the MedTech sector, particularly in innovative cardiovascular solutions.

Other notable transactions in the space were Boston Scientific Corporation’s acquisitions of Axonics, Inc, announced in January 2024 (USD3.3 billion) and Silk Road Medical, Inc, announced in June (USD1.1 billion), as well as Becton, Dickinson and Company’s acquisition of Edwards Lifesciences Corporation, which was announced in September (USD3.9 billion). Private equity also continued to remain an active player in the MedTech and digital health space, led by KKR’s acquisition of a 50% stake in Cotiviti in a deal that valued the company between USD10 and 11 billion.

Healthcare providers and services

In the healthcare providers and services subsector, deal activity overall remained relatively low, accounting for approximately 12% of total healthcare deal value for the year. However, the space did still see some notable deals occur, mainly focused on strategic expansion of market presence and capabilities. These included Cencora’s acquisition of Retina Consultants of America, announced in November 2024 (USD5.1 billion) and Health Care Service Corporation’s acquisition of The Cigna Group’s Medicare Advantage, Medicare Supplemental Benefits, Medicare Part D and CareAllies businesses (USD3.3 billion).

Factors in Favour of Healthcare M&A in 2025

“Patent cliff”

A continuing trend from 2024 that is expected to significantly drive healthcare M&A in 2025 is the much-anticipated “patent cliff,” in which patents on a significant slate of blockbuster drugs are set to expire between 2025 and 2030. It is estimated that the upcoming expiries will jeopardise over USD183.5 billion in annual revenue for drug makers. Key drugs, including AbbVie’s anti-inflammatory treatment, Humira, Merck’s cancer medicine, Keytruda, Bristol Myers Squibb’s immunotherapy, Opdivo, Johnson & Johnson’s immune disease medicine, Stelara and Regeneron’s eye treatment, Eylea, will all lose patent protection by the end of the decade.

Coupled with reports that R&D productivity and R&D returns have both declined at the big drug makers, healthcare companies are at risk of shrinking if they fail to narrow the gap between expected losses from patent expiries and shrinking R&D pipelines. To counteract these losses, pharmaceutical and biotech companies are increasingly expected to rely on acquisitions to fill these portfolio gaps by investing in companies with robust research and development programmes, acquiring companies with promising product pipelines or pursuing scope deals to access new markets. The last major “patent cliff” at the turn of the last decade was followed by a major wave of M&A for this very reason.

There are already reports of large pharmaceutical companies pursuing this strategy in 2025. For example, Merck is reportedly in talks to acquire a therapeutics company focused on cancer and rare disease treatments to counteract the expected losses from losing patent protection on Keytruda (which currently makes up about 46% of the company’s total sales). Given the immediacy of potential losses, mid-sized biotech companies with promising revenue prospects as well as pharmaceutical companies with drugs already in Phase III trials are likely to receive the most interest.

Availability of capital among healthcare companies and private equity firms

The robust financial reserves available to healthcare companies and private equity firms are also expected to be a significant driver of M&A activity in 2025. According to the EY Firepower report, the combined M&A firepower of bio-pharmaceutical companies was USD1.3 trillion entering 2025, reflecting their capacity to address innovation needs and shifting market dynamics through acquisition. Similarly, private equity firms are well-prepared for deal-making, with reports that global private equity dry powder exceeds USD2 trillion. This abundance of capital not only provides the resources to execute transactions but also signals a readiness to pursue opportunities aggressively.

A significant number of healthcare companies have also engaged in divestitures in recent years, freeing up capital to invest in other core strategic areas. For example, after Merck, Bristol-Myers Squibb, GSK and Novartis divested their consumer groups, all four companies made large acquisitions. It is also expected that as pharmaceutical companies continue to prioritise filling their portfolio gaps, they will increasingly seek to divest lower-growth or non-core assets that compete for internal resources as they pursue higher growth, higher velocity opportunities.

Novel deal structures

In 2025, healthcare companies are also expected to increase M&A activity by pursuing novel deal structures such as joint ventures, partnerships or marketing agreements with potential targets. In 2024, these types of deals included Merck’s USD1.4 billion partnership with AI biotech company Caris Discovery and Ipsen’s USD900 million exclusive licensing agreement with Sutro Biopharma, both aimed at developing and commercialising antibody-drug conjugates.

These alternative arrangements allow larger companies to develop innovative therapies at lower cost by pooling resources and expertise without the burden or risk of a full acquisition. It also gives management an opportunity to test run potential targets before a full acquisition down the line. These arrangements are also beneficial for smaller, innovative potential targets with promising products or research pipelines, but who lack the resources or expertise to effectively navigate FDA approval or a successful product roll-out. There were increasing numbers of these deals in 2024 and the trend is expected to continue into 2025.

Product innovation and digital health

Novel and emerging technologies are also expected to drive M&A activity in 2025. In particular, the emergence of advanced digital health solutions, the rise of AI and the surge of GLP-1 drugs to treat obesity are being closely watched by healthcare companies eyeing strategic investments in these spaces.

As the healthcare industry continues to face rising labour costs and staffing shortages, legacy healthcare providers are seeking to acquire innovative digital health firms to improve patient outcomes while delivering on the rising trend of value-based care. This trend is being seen in both the healthcare services space (such as the rise of telehealth platforms) as well as in healthcare IT. For example, private equity is increasingly investing in systems to boost efficiency such as TPG’s acquisition of Surescripts, an electronic prescription network or TowerBrook and CD&R’s acquisition of R1 RCM, a company that provides revenue cycle and billing services to hospitals.

It is also expected that companies across all healthcare industries will increasingly seek to acquire and integrate AI into their businesses. For example, it is believed that potential benefits of AI in early-stage drug development will help researchers understand diseases better, discover drugs faster and improve the design and testing of novel products. Consumer health providers are also exploring AI use-cases to improve the speed, efficiency and costs of delivering patient care as well as reducing administrative burdens such as documentation, allowing clinicians to focus more on patient care.

Another trend likely to drive M&A activity in 2025 is continued investment in GLP-1 drugs and other treatments for obesity, following the blockbuster success of drugs like Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro and Zepbound. The surging popularity of these drugs has already encouraged other players like Roche to enter the market and a new wave of obesity drugs coming from companies like Terns Pharmaceuticals, Structure Therapeutics, Pfizer and Amgen are expected to begin arriving to market in 2026. It is speculated that existing players like Novo Nordisk and Eli Lilly will likely compete for potential M&A targets in the space like Zealand Pharma, which is working on a promising oral weight-loss pill.

Improvement in IPO markets

After several years of subdued IPO activity, it is currently expected that the IPO market will rebound in 2025, despite recent market volatility. Healthcare companies are anticipated to be among the top performers of the IPO recovery which would unlock additional sources of capital and funding within healthcare M&A. Several biotech companies have already announced their intentions to go public in 2025. These include:

• Maze Therapeutics, focused on treating chronic kidney disease;
• Metsera, developing an injectable GLP-1;
• Sionna Therapeutics, developing treatments for cystic fibrosis; and
• Odyssey Therapeutics, developing several treatments in the autoimmune and inflammatory spaces.

Headwinds for Healthcare M&A in 2025

Favourable trends including those described above are expected to support healthcare M&A activity through 2025, although it will continue to face headwinds this year, principal among them, macroeconomic and regulatory uncertainty. Additional headwinds for healthcare M&A in 2025 include anticipated reductions in megadeals as well as competition among large acquirers for a reducing number of quality M&A targets.

Macroeconomic uncertainty

Macroeconomic uncertainty is expected to cast a shadow over healthcare M&A activity in 2025, driven by a complex blend of global and local factors. Despite recent signs of moderation, the lingering effects of elevated inflation continue to make financing deals more expensive and less attractive for buyers. Furthermore, the global trade environment remains volatile, as ongoing renegotiations of trade agreements and the imposition of new tariffs create uncertainty for businesses. For example, the US has maintained or increased tariffs on key imports, including medical goods and pharmaceuticals, as part of broader trade policies, raising costs for healthcare companies reliant on global supply chains. Adding to this, geopolitical tensions, such as prolonged conflicts and global trade disruptions, have made cross-border M&A particularly challenging. Companies considering international expansions must navigate fluctuating currency values, new tariffs or shifting trade alliances, all of which complicate the integration process.

Taken together, the continuing high interest environment, uncertain tariff policy and geopolitical tensions are generating market volatility which may disincentivise business leaders from announcing large transactions lest they risk such deals failing to break through market noise.

On the other hand, these market risks are simultaneously pushing corporations to explore other investment structures such as partnerships and joint ventures, which, in the aggregate, may further spur healthcare M&A activity despite these market headwinds.

Regulatory uncertainty

Leading into 2025, many suspected that the increased regulatory scrutiny faced by healthcare M&A under the Biden administration would falter under new leadership. However, there is little evidence to suggest that healthcare regulation will significantly ease. For example, proposed legislation in both red and blue states as well as continuing pressure from Congress aim to monitor private equity ownership of healthcare companies.

Further, in February the FTC Chair Andrew Ferguson sent a memo to agency staff clarifying that the FTC will continue the Biden-era stricter guidelines for reviewing corporate mergers. In fact, the new Republican-led FTC’s first challenge came on 6 March 2025 when it sued to block GTCR BC Holdings, LLC’s acquisition of Surmodics, Inc, alleging that the deal, which seeks to combine the two largest manufacturers of critical medical device coatings, is anti-competitive.

Conclusion

As 2024 falls further and further into the rearview, deal makers continue to assess the changing landscape with a sense of optimism. Motivated by the seemingly never-ending patent cliff and the availability of necessary capital, healthcare companies will likely look to make strategic acquisitions in 2025 to position themselves for growth. There will, however, continue to be some headwinds to healthcare M&A in the foreseeable future, characterised by both economic and regulatory uncertainty. In short, despite some challenges, the stage is set for healthcare companies and deal makers to navigate the current environment and seize opportunities, shaping the trajectory of M&A activity in 2025 and beyond.