In this year’s survey, respondents expected healthcare to experience the most M&A activity over the next 12 months, selected by nearly a third (32%) of dealmakers. More than six in 10 expect the sector’s M&A market to strengthen in the upcoming year, with only 6% expecting it to weaken.

2024 is already off to a strong start, with $85.3 billion in deal value in Q1 2024 and 20 U.S. hospital and health system transactions, significantly exceeding the number of transactions announced in Q1 of the last three years.

What’s driving this activity? Efforts to improve efficiency are top-of-mind, with 62% of respondents expecting the sector to strengthen citing efficiency improvement as a key driver. This was followed by the aging population and corresponding increase in demand for health services (41%), investments in technology, automation and AI (32%), and cost cutting/containment (29%). Forty percent of healthcare respondents also strongly agree that dealmakers will target companies that successfully implement AI in the next year—significantly more than any other sector.

Efficiency improvement might be a catch-all for a variety of different factors, including ongoing labor shortages, technology adoption, revenue cycle optimization, and efforts by the Centers for Medicare & Medicaid Services to shift fee-for-service members into value-based care arrangements. As one respondent noted, “Value-based care continues to be the greatest opportunity for healthcare dealmaking.” Another spoke of “utilizing AI to help improve diagnoses and drive efficiency.”

Other trends are also driving activity—an accelerated push towards outpatient care, innovative therapies and cost-effective treatments, and the ongoing consolidation of behavioral and mental health providers. Yet heightened antitrust scrutiny at the federal and state levels continues to pose obstacles, as well as recent legislation in California and elsewhere that would enhance oversight of healthcare facility transactions involving private equity or hedge funds.

Meanwhile, AI and other new technologies have given rise to new date privacy and security vulnerabilities that must be carefully navigated by healthcare companies.  “Healthcare organizations are both interested and hesitant when it comes to AI,” says Whalen. “There’s a vast amount of data to be processed and they’re looking for efficiencies, but the tools also present a substantial security risk.”