From Gridlock to Green Shoots: 2026 M&A Healthcare Market

Chris Moynihan (00:01): 

Welcome to Solomon Connects. I’m Chris Moynihan, a director in the M&A group. I’m joined by Jon Hammack, head of our Healthcare group. Jon, welcome to the podcast.

Jon Hammack (00:11): 

Hey, Chris. Great to be back.

Chris (00:13): 

So, Jon, maybe to start, do you want to just talk a little bit about the activity you’re seeing in your group? I know last time you were on you talked about how you’ve built the largest group at the firm. What’s the activity you’re seeing across all of your bankers today?

Jon (00:28): 

I think the good news is uniformly, we are very busy. We have the largest backlog we’ve ever had, and we’re seeing it in all sectors. We’re seeing it in healthcare services, healthcare, IT, life sciences, medtech, digital health, consumer health tech. So, we feel really good about where we’re at in the activity we’re seeing across the board. One of the advantages of having a diversified team and group is sectors’ ebb and flow. Sometimes sectors are hot, sometimes sectors are not, but right now, luckily, we have significant activity across all of our groups and have the deepest pipeline that we’ve ever had.

Chris (01:06): 

So, Jon, I know in bringing our listeners up to speed that last year, you and Jon Pritti, another one of our healthcare bankers, did a deep dive into the trend shaping healthcare outlook on’25 and into ’26, and now that we’re here, how would you describe the broader mood in the market? Is it still some of those same themes you’re seeing last year or has there been an evolution in deal flow?

Jon (01:28): 

Listen, I think the themes that we’re seeing are fairly consistent with several months ago. I think there are some nuances. You know, coming out of ’25, there’s a lot of press around how ’25 was this magnificent year — and I think you actually really got to dissect the data set, and there were some large strategic deals driving deal value. There were some large LBOs – so, private equity doing some very large deals. When I look at mid-market, and particularly mid-market private-equity M&A, in healthcare, it was a better year than ’24, but it wasn’t a gangbuster year. And, as we move into this year, there was an expectation that we were going to see this flood of assets hitting the market that had been held for five, six, seven years. And we think that will happen. It just may not happen all at once. So, we think about some of the trends that were impacting ’25… we had the Big Beautiful Bill.

We had uncertainty around Medicaid spending. We had tariff uncertainty. We had rates that were expected to start reducing. When you have uncertainty in a market, it creates gridlock. And I do think those pressures have not gone away, but I think some of the uncertainty has subsided and that should be positive for deal flow. Rates have certainly stabilized and are starting to come down. We expect in ’26 there will be at least a few more cuts. I think that’s all very constructive for M&A and healthcare M&A. So, what’s changed since I last joined the podcast? There’s an expectation that it will be a slower transition into a more constructive deal environment, and perhaps maybe even a little bit more backend weighted. But sitting here today, I’m cautiously optimistic that we’re going to see a much better year this year than we did last year — and are we going to be repeating ourselves and having a little déjà vu, where the market maybe didn’t snap back as much as we wanted, but looking toward a more constructive ’27? Maybe, but I’m still optimistic about ’26.

Chris (03:39): 

And maybe drilling down into one of those points, you mentioned the regulatory: so, the One Big Beautiful Bill; the issues around Medicaid. Do you think that we’re past those concerns now — and people have certainty going forward and that will unlock some of these sales of companies, especially that are heavily influenced by Medicaid, or it’s one of their significant payers? Or do you think there’s still some of that uncertainty and that’s driving the holdup in sales?

Jon (04:03): 

I think Medicaid is one specific issue that continues to have impact on select companies. So, companies that are heavily leveraged to Medicaid spending — and you got to look at it state by state — I think is creating some pause, and I think some of those companies may continue to play that out to see how their business models evolve under those Medicaid cuts. But I think that’s a smaller part of the market, a smaller slice of the broader deal flow that we expect. Again, some of these headwinds that I mentioned in ’25 have largely subsided and people have more clarity on where they’re going.

Chris (04:39): 

If you are a sponsor — you’ve owned an asset for six-plus years —  what are you going to change about the approach? Is it changing your valuation expectations and just looking for the right deal? Are you holding and trying to get more time from your LPs to keep it in portfolio? It seems like a lot of the businesses are performing well, they’re just not getting the values that they think they deserve because of where they bought in ’21 or ’20.

Jon (05:02): 

Yeah, I think we still face a valuation overhang. I mean, this is a victim of the 2019 to 2022 period, where everything was bought at elevated prices; and it was at a time when money was cheap and you could support those prices as rates went up and – and in some cases, performance lagged a little bit – it’s become harder to extract those same multiples. So, are we at valuation equilibrium? No, we’re not. But has it gotten better? Yes. So, what will happen with these assets that are five, six, seven years in the hold? I think there was a belief that those would start coming out now as they’ve grown into their enterprise value; it may impact IRR, but their MOIC will be okay. And I think we’re starting to see some of that. We’re not at equilibrium yet, and for ’26, we’ll see some of these assets come out, and I think that sellers are going to just have to accept that they’re not going to get the multiple that they bought into it, but I think some of these might even be a year away still. So, it will be selected by subsector, and selected by asset — things will improve, but floodgates aren’t opening yet on those assets.

Chris (06:10): 

Healthcare is a broad group, so it covers a lot of different subsectors. One of the biggest industries in terms of M&A activity in the US, where are you seeing pockets of activity? Are there any bright spots and subsectors that you want to profile or highlight as we’re seeing activity today?

Jon (06:28): 

Listen, I think there’s a number of subsectors that were busy last year, and we expect them to be busy this year. Parts of the healthcare IT market continue to gain a lot of interest. Pharma services are coming back and we expect there to be interest in that sector as well. Parts of the healthcare service market, whether it’s infusion and pharmacy and post-acute, that continues to generate real buyer interest. Medtech has been a little bit slower in the prior few years, and we’re starting to see some green shoots of activity in select subsectors and contract manufacturing and outsource services. So, we’re starting to see these select subsectors gain real interest in the market from buyers, and I expect to see those areas continue to be busy this year.

Chris (07:13): 

Maybe just focusing on a sector, you spend a lot of time in medtech, do you want to talk about some of the themes there? You mentioned it had some of its challenges in ’25, but how are you feeling about ’26? Do you think you’ll see resurgence of sponsor activity and where will the activity be, specifically?

Jon (07:30): 

So, I think we’ll see a busier ’26 than ’25. The medtech market is not too dissimilar than other markets, and we’ve discussed this before. There is a bifurcation where the A-plus assets are generating a ton of buyer interest and they’re still garnering very high multiples. The B assets and below – if they’re out there – are still in a little bit of limbo, and that’s where this valuation equilibrium has not quite aligned yet; and frankly, you’re just seeing less buyer interest in moving in those processes. So, A-plus assets are going to still garner a lot of interest in medtech. You’ve seen that primarily in contract manufacturing and outsource services. The strategics still play a big part of this market as well. I mean, you’ve seen some very large transactions from large public companies. Again, finding growth and filling product gaps, I think we’re going to continue to see that as well.

Chris (08:31): 

One of the unifying themes that you touched on in your last podcast as well is AI, and it seems to be having an impact across basically all of those subsectors. Where do you think we are now, and what are buyers and sellers thinking about as AI becomes more of a theme across all those different markets?

Jon (08:50): 

I’m not an expert on AI. I think we’re still in the early innings. If you look at our healthcare system – I mean, there’s still massive inefficiencies and AI should be a fantastic tool to help us bridge the gap there. I think it’s going to continue to play out in the workflow side. It’ll continue to play out on the admin side; on the operational side of healthcare. I don’t think we’re there yet on the clinical side of healthcare. I mean, I think there’s some regulatory questions that need to be answered. It’s not going to be directing healthcare, if you will, on the clinical side, I think it’s going to be an adjunct to better decision-making, and I think we’re making progress there. So, there’s a lot that will unfold in AI in the coming years. By the way, it’s moving really, really fast, but I still think we’re early innings.

Chris (09:35): 

We talked a lot about sponsors and sponsor activity in the market. Are you seeing any activity from strategics in any of these subsectors where combinations of scale are bringing together synergies, that kind of transaction? Or has it predominantly been mostly sponsor focused?

Jon (09:51): 

Well, I think if you look at the broader market, the strategics have actually been relatively busy. I mean, strategics are growth focused. They’re buying very large, very high-priced assets that are strategic, filling product gaps, driving top-line growth and margins for them. Or you see them doing tuck-in acquisitions to fill product gaps. We’re not seeing a massive convergence of strategics and private equity in the same process. Now, there’s select subsectors where we’re seeing that. We’ve seen some of the distributors playing in the multisite part of the world, but across the board we’re not seeing this convergence anymore. In today’s environment, strategic should be able to outcompete and outprice private equity, just given where rates are. We didn’t see this five years ago. We saw private equity outcompeting and outpaying strategics. We’re not in that environment anymore. But for the most part, I’d say, in the processes we’re seeing, they’re either strategic-focused processes or they’re private equity-focused with a few strategics but tend to end up in the hands of private equity.

Chris (10:59): 

Excellent. Thank you so much for joining, Jon. It’s been really great to hear your perspectives and insights across the healthcare industry, and we enjoyed having you on the podcast.

Jon (11:08): 

Thanks, Chris. Thanks for having me.

Chris (11:10): 

To our listeners, thank you for tuning in. Be sure to check out solomonpartners.com for more healthcare and M&A insights. approach a lot more clients and have more interesting, productive conversations. So, thank you all for joining me today. And to our listeners, thank you so much for tuning in. For more insights on our sectors, please visit solmonpartners.com.