More than £10 billion of M&A deals completed in the UK healthcare market last year are likely to fall short of expectations, according to a new analysis.
Healthcare deals in the UK market increased during 2023, with 265 transactions worth £15.4bn taking place over the course of the year. Private equity was involved in 57 per cent of these deals, according to PWC.
Recent research suggests that around 65 per cent of M&A deals fall short of expectations, which means that £10.1bn of healthcare deals completed in 2023 alone are under-performing. Previous research put M&A shortcomings at anywhere between 70 to 90 per cent.
By this measure, £5.7bn of private equity investment in healthcare deals during 2023 would be performing below expectations.
Lesley Fordyce, change director at Equator, which carried out the analysis, said there was a well-established acknowledgement that M&A rarely delivered the promised value – but that the answers were equally well-known.
She said: “The people aspect of M&A deals is like going to the gym – everyone knows they should be doing it, but there are easier ways to spend your time.
“This is a thorny issue that’s been around forever, but we don’t seem to learn the lessons. There are the tangible aspects of a deal – making the numbers work, bringing together systems and processes – which give you a comforting calculation of intended value.
“The bit which makes all of this other stuff actually work, of course, is people. That’s a trickier and less quantifiable thing to tackle, so it tends to be forgotten completely or left until later, by which time it’s too late.”
The prospects for dealmaking in 2025 look positive, with some commentators noting that PE houses are sitting on record levels of dry powder – funding waiting to be deployed. Rising business and consumer confidence, as well as more stable interest rates, are likely to encourage more dealmaking as 2025 gets underway.
Mark Bell, change director at Equator, said: “No-one is saying this is easy, but we are saying it’s worth it. If you’re putting the money and time into a deal, there’s a disproportionate advantage to spending a little more effort on engaging people right at the start of the process.
“Bringing new systems and processes into a business often feels like a headache for staff across the business, rather than anything that’s going to help them personally.
“All of these little things slow down integration, eat into productivity and ultimately stifle the value that you can expect from a deal. M&A is a great way to bring new scale and reach to a broker or an insurer, but in what other area of business would you be satisfied with something that was two-thirds of what it could be?”
