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Dealmaking Outlook for Healthcare and Private Equity in 2026 with Amber Walsh of McGuireWoods LLP 1-9-26
00:13:20
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- [00:01]
A
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B
This is Scott Becker with the Becker Business in the Becker Private Equity Podcast. We're thrilled today to be joined by one of our regular guests. We're joined by Amber Walsh, who's a brilliant lawyer, but she's more than a lawyer, she's a leader. She's a business person. She also serves on the executive committee at McGuire Woods. We talk to Amber regular about trends that she's watching in healthcare and private equity in business. Amber, take a moment today and tell us what you're seeing in the deal environment. I know we had a private equity podcast that went out yesterday that talked about five trends from last year. There were a lot of big deals done, but overall number of deals was lower, fundraising was tough. What do you see going into 2026?
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C
Yeah, so definitely expect and I'll start with private equity and then tell you what I'm particularly thinking about today. What's hot on my is in the hospital and more traditional healthcare provider deal space. But with private equity, you're absolutely right. The end of the year started to tilt up as everyone expected. The end of the year kind of ended the way that the beginning of 2025 started, where people expected a slow climb up for a variety of reasons in terms of deal activity that continued throughout the year as expected into 2026. And I'm really excited for next week to hear all the buzz that comes out of J.P. morgan that second week of January. Every year is a great private equity deal making kickoff, no matter if it's in the height of 2021 or in the quieter years of 24 and 25. So I'm really looking forward to that. But today I am thinking about the hospital M and A market which has lagged even farther behind in terms of volume of activity of private equity deals recently, but is also expected to continue to be more robust in 2026. Despite the fact that there are a lot of headwinds, a lot of reasons why you would think that the hospital MA market might continue to be a little bit stalled. But most industry experts are pretty excited about the year and are looking at the hospital MA market as ready to transact and to kind of overcome some of those headwinds or to transact despite the headwinds and maybe even do deals a little bit differently with a little bit of a different focus. So for me today, that's what I'm thinking about.
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B
Fascinating. And what is. I mean, there's this really huge divide out there. I think the latest numbers are 60% of health systems have some margin, about 40%, often smaller, rural, independent have very little if any margin. Some of those seem to need a dance partner. But are there people that want to merge with them or are more of the mergers going to be systems that are both strong, trying to strengthen synergies? What do you see out there in terms of the deal market?
- [03:59]
C
Well, we absolutely saw both. In the LATTER Half of 2025, you had some large system mergers announced in New York. You had Nuvance and Northwell, I think 28 hospitals, if I remember correctly. That was a big system system merger. But you saw a lot of the ongoing acquisition. HCA continued to acquire hospitals, community acquired hospitals. There were lots of acquisitions of rural hospitals. And with a lot focused on a few different drivers for that. Academic medical centers. Right now, academic medical centers are particularly many, not all. Many are particularly struggling. They are very subject to. To regulatory changes and of course, NIH and other grant funding hits because of their heavy dependence on that. So you have academic medical centers that are in that category of looking for a dance partner and I think ripe for a merger of some type. You have, as you mentioned, the rural providers. You have those where the large health system who may have a hub and spoke model or looks at these kind of satellite opportunities to bring in some of these freestanding hospitals that may have 340B opportunity, despite the changes to the 340B program. But that's a driver. And also to give kind of that halo effect to the satellites that they would be acquiring to bring them into the large system, to get that halo from, you know, the center of the hub and spoke, the main system. You see all of those happening around the country and the headwinds that had been a little bit against it. Certainly the activity never fully stopped, but it was slower in recent years and certainly was slower at the beginning of 2025. It does seem like kind of what happened in the private equity markets was where there's a bit of a pause, there's a bit of a readjustment, but then a recognition that, okay, this may be the new norm. We still need to transact to execute on our strategy. So headwinds like anticipating more underinsured with the ACA subsidies, Medicaid cuts, increasing wage benefits and supply costs. All these things that are headwinds could be headwinds for deal making, but also create situations where you have hospitals who may otherwise not have been ready to transact, be ready and you have kind of the acquiring hospitals being ready to take that risk because those larger hospitals have to execute on their own strategies, moving to different acuities, to having different locations. And it seems to be that everyone's kind of grasping, coming to terms with the fact that we're going to have to deal with these things. They're not short term, acute situations, they're more long term situations. And that you're going to have to transact around them such that it's making everyone a little bit more enthusiastic for actually being able to take the plunge and do deals in 2026.
- [07:43]
B
And you had mentioned the phrase in the private equity world there are timelines where it's very clear funds have to do deals. Like if they don't put money to work at some point, their investors get upset for not putting money to work if they don't get exits. And we've seen a lot of this challenge at some point their investors upset they don't have exits. The private equity professionals don't do as well in the health system ecosystem. I mean there are certain places where systems have to do something. They're just struggling and they need to find a partner, they need to do something. There are other systems that where the needs not as clear, but there might be a strategic need to grow a footprint to become stronger in an area. What drives health systems that have to do something or that feel the need to do something?
- [08:35]
C
Yeah, that's a really interesting observation. I never really thought about that difference. Where in the private equity deal making world you are answering to investors, you absolutely are expected to. And it is a central feature expected by your LPs that you will transact and grow and accomplish certain, you know, key targets and timelines. And there are different drivers in the health system. It's not answering to separate investors. Yes, some are publicly traded, you definitely have the for profits and HCA et cetera. But it is a little bit different. So some of the drivers that I see for health systems are absolutely needing to reduce costs. And costs can be mean a lot of different things. It may be the cost of providing care. And so you take an example that everyone is talking about right now is AI you have health systems by far out invested in the rest of the healthcare community and the rest of the economy at large outside of healthcare in AI. So you make these investments you have adopted. Now you need to spread out that investment and extend it to additional sites of service. And so an M and A can help you achieve that site of service. You have additional sites of service in different markets where you can start serving different patient populations that have I mentioned different acuities. When you have if your tertiary hospital is the center of your hub and spoke as it often is then you can shift some of you can make sure that you're getting your tertiary care moved to the center of the hub and spoke while the satellites are more serving that lower acuity care but the more that you're able to grow and strategically place these different satellites through de novo build but acquisition is dominantly what we're talking about. Now those are just a few of those, a few of the different drivers. There's a whole host of additional ones but those are some that I am really interested in and tracking. And you see recent hospital announcements specifically referred to?
- [11:11]
B
Certainly no. And you certainly see a situation where a system has to be big enough to be able to invest in whether it's physicians, staff, technology, a whole set of things and be able to take some investments. And there's always some risk with some of those investments that if they make those investments they don't end up in real trouble if they don't all go perfectly. And there is a need for a certain amount of scale to do most of these things that people have to do. There's also tremendous shortages that are leading people to have to combine in terms of orthopedics, cardiovascular, all kinds of areas and to be able to service things. So no, I think your point is so well taken. And there's also a need sometimes to consolidate to be able to play it in more even keel with some of the payers. So I think your point at it is so well taken and I appreciate you drawing it out some. No, thank you. Amber. Anything else you wanted to share today? I mean the private equity healthcare environment, I think people are expecting an uptick in deal activity. It was not a bad year. Last year just wasn't a banner year. It's still a busy year. Not as busy in some of the practice management areas, but lots of busyness in health, tech and all kinds of other areas. And in the health system area you would say the prognosis is similar, that you expect more transactions this year than last year. And people focused on it some.
- [12:31]
C
Absolutely. I'm expecting that for both and we'll continue to watch other factors that weigh in, such as the state regulatory environment. One of the chilling effects on deal making from the past couple of years was the proliferation of new state health care transaction law requirements where states AG or departments of health had review processes. That has turned out to not be quite as onerous as people had feared. But that's what we'll continue to watch and if that changes, then that will of course have a like impact on deal making. But certainly where we sit right now in the first week of January, we're expecting more movement in kind of both markets, both private equity backed and more of the traditional hospitals and health systems.
- [13:27]
B
Amber, I know next week you'll be at the JP Morgan Healthcare Conference in San Francisco and we'll get a chance to visit with you from there and get a sense of what's going on on the ground here. Thank you so much for always joining us on the Becker Private Equity and the Becker Business Podcast. You are remarkable. Thank you very, very much for joining us.
- [13:45]
C
Thank you, Scott.
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D
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