Healthcare investment outlook: Optimism amid new risks

Innovation and overall recalibration are reshaping M&A activity after an unprecedented two years.

M&A activity bounced back in a big way across many industries in 2021, and healthcare and life sciences (HCLS) was no exception, as the number and volume of transactions jumped well ahead of prepandemic levels.

Many in the HCLS industry expect that momentum to continue through 2022, according to our new report, even amid new concerns about staffing shortages, inflation, and supply chain disruptions against the backdrop of increasing global volatility.

The 2022 Healthcare and Life Sciences Investment Outlook draws from KPMG’s extensive research, surveys of corporate and private equity deal-makers, and the experience of our own deal advisers across nine HCLS subsectors. And while each subsector is different, there are common themes rippling across them, and none more so than the pandemic’s transformative impact on how the industry can operate and innovate going forward. Just a few examples:

The battle against COVID-19 has accelerated other scientific advances, with new methods for rapidly developing and testing new therapies and diagnostics—and new opportunities for biopharma and diagnostics companies. 

The pandemic has also spurred rapid advances in telehealth and home health, jump-starting the evolution of delivery models across healthcare, from behavioral health and dermatology to virtual clinical trials. This is also now the main driver of innovation in health IT, setting up that subsector for continued double-digit growth.

The deep decline in elective procedures during the pandemic hit hospitals, device makers and specialty physicians especially hard, but many of these procedures are starting to return to prepandemic levels, and demand planning is swinging back the other way.

Looking ahead

Our experts are bullish about M&A prospects in HCLS for 2022, and our survey respondents largely feel the same way. About 70 percent said they expect to increase their M&A activity this year, and more than 75 percent of private equity investors said they expect to do more deals.

This optimism comes even with many acknowledging the industry will continue to navigate risks in 2022, including the ongoing monitoring of COVID-19 itself. Labor shortages, rising wages and inflation are straining providers, while supply-chain bottlenecks continue to complicate business for drugs and device makers.

Meanwhile, the prospect of more aggressive legislation and regulatory enforcement is being closely watched for M&A impact. Some areas of concern:

The Biden administration and the FTC are examining the effect of hospital consolidation on the costs and quality of care, and the hint of tougher antitrust enforcement could drag on hospital mergers and limit healthcare IT investment. Meanwhile, evolving FTC antitrust policies could increase scrutiny on pharma mergers.

Rules that allowed expedited approval of breakthrough devices or diagnostics may be repealed or modified.

Potential new restrictions on access or use of patient data could make it harder for providers to discover new insights into effective care methods.

It’s been a turbulent two years, but even as the HCLS industry resets, the drivers of M&A remain in place. In life sciences, companies rely on M&A to sustain innovation and replace lost revenues from maturing profits. In home health and physician practices, the growing complexity of doing business and the prospect of operational efficiencies continue to drive consolidation of services.

Meanwhile, the U.S. population keeps getting older. The “silver tsunami” is lifting demand in almost every part of the HCLS industry. Advances in technology will continue to offer new ways to improve service, increase efficiencies and speed to market—and M&A remains an important way to acquire or integrate new technologies.

Detailed subsector views

Our report provides a comprehensive outlook for each subsector, including key 2021 statistics and the 2022 outlook, with predictions from our survey respondents and KPMG experts. Just a few of the subsector highlights:


We see great interest in potentially transformative technologies such as mRNA and RNAi. Meanwhile, leading companies are spinning off non-core assets. More leaders will invest in innovative firms using creative deal structures like milestone-based payments rather than making outright acquisitions.

Diagnostic manufacturers

COVID-19 was a huge driver of growth, and innovations have multiplied. Acquisitions soared, and some diagnostics manufacturers used their earnings gains from testing to make more or larger deals.

Healthcare IT

Telehealth is the most attractive target for health IT investment, according to our survey. The pandemic spurred federal officials to make it easier to get reimbursed for remote care. New connected devices are supporting remote healthcare, and large platforms are forming. Meanwhile, staffing shortages are driving demand for digital tools that can boost efficiency.

Hospitals and health systems

Even as the pandemic led to an acute labor shortage and curtailment of elective surgeries, deal volumes increased 26 percent in 2021. Hospitals are investing in a range of technologies to boost access, efficiencies, and the physician and patient experience. Private equity investors will continue to pay high multiples for assets they can combine to realize efficiencies.

Behavioral Health

Demand is rising sharply in areas such as mental health counseling and substance abuse treatment. That’s partly due to the pandemic, but there’s still a lot of runway because only about half of Americans with a mental, behavioral or emotional disorder are receiving treatment. Behavioral health topped the list of specialties our survey respondents cited as the most likely targets for investment in the next one to two years.

Contact us

Ash Shehata

Ash Shehata

Principal, National Sector Leader for HCLS, KPMG US

+1 513-763-2428