Change Healthcare hack gives investors pause
PitchBook added that challenges with reimbursement as a result of the Change Healthcare ransomware attack have also left investors hesitant to move forward.
“The Change Healthcare cybersecurity breach, which began on February 21 and was resolved in mid-March, caused temporary delays in active deal processes as target companies scrambled to reconfigure their billing processes and buyers looked for assurance that revenue would normalize at previous levels,” the report stated.
The massive scope of the breach has highlighted the growing risks associated with HIPAA compliance and cybercrime from a regulatory and cost standpoint, the report noted. Ultimately, the regulatory attention the breach has engendered has given private equity firms a reason to reconsider their investments in healthcare.
Buyer-friendly landscape has changed
The economy has changed a lot since 2018. While funds are readily available and there are ample opportunities for private equity firms to invest in healthcare organizations, inflation has made the proposition more expensive. The Federal Reserve’s evident intent to keep interest rates high for most of 2024 has stalled deals, widening the bid–ask gap as investors look forward to the inevitable reduction in inflation rates that could push prices down.
However, PitchBook noted that there are a large number of deals currently in progress, which means private equity groups still have an appetite for healthcare—they’re just being more cautious with how and where they invest. It’s possible the downslide in investments seen since 2021 will bottom out in 2024, resulting in a wave of new purchases next year.
“Firms have deals in the pipeline, to be sure, but we expect most of these processes to progress slowly, with announcements trickling in toward the end of the year and activity picking back up in earnest in 2025,” the report said.
The full analysis from PitchBook is available here.