How Healthcare Reversed Its M&A Dip

In 2026, middle-market healthcare M&A showed renewed momentum after years of decline, even in the face of growing public and regulatory pushback. Steve Grassa, managing director of Physician Growth Partners, joins the podcast to discuss the state of the healthcare market today, his outlook for the year ahead, how sponsors are approaching exits and AI, and more.

This episode is brought to you by Hilco Global. Learn more at hilcoglobal.com.

Read a transcript of the podcast below.

Steve Grassa: Thank you for having me.

MMG: Thank you for being here. Can you start by telling us about your background and the work you do at PGP?

SG: Of course. I’m a managing director at Physician Growth Partners, or PGP. We provide sell-side advisory services to clients looking to transact as a platform with a private equity firm or as an add-on with a strategic buyer. As a firm, we have almost 20 bankers split between Boston and Chicago. I sit in the Boston office, where I grew up, but I work with clients across the country on transactions ranging from $20 million to more than $200 million in enterprise value. I’ve spent time across healthcare services sectors. We don’t do much work in life sciences, biotechnology, or medical devices, but I’ve spent the last decade covering a number of sectors and subsectors across the healthcare services ecosystem. I’ve seen the market’s broader ebbs and flows, as well as the trends within individual sectors.

MMG: Got it. Before we get into our discussion, a very important question: If you had to pick a walk-up song, what would it be?

SG: Hard-hitting questions to start. I have a three-and-a-half-year-old son who’s really into Space Jam. We watch it almost every day, so I’d have to go with the Michael Jordan intro song, which I believe was also the Chicago Bulls’ intro song in the 1990s. It’s called “Sirius.” We play it a lot and listen to it every morning, so I’d have to choose that. My second choice would probably be Kid Rock, so those are two wildly different genres.

MMG: Good energy, though. I like it. You’re raising the next generation on the classics.

SG: Yes.

SG: We’ve seen the market soften over the last few years, but I would characterize it more as a reorientation in where investors and funds are spending their time. When I started, there was a physician practice management, or PPM, craze. Then the physician trade became more difficult, and private equity firms started asking how they could own the provision of care in a more physician-light model. Behavioral health businesses, post-acute and retail healthcare, and infusion services became more attractive. That ultimately evolved into a focus on diversifying away from reimbursement exposure and participating in other tailwinds driving demand in healthcare services, including pharmaceutical services, outsourced business services that serve provider markets, and payer services. There has definitely been a slowdown in volume, but plenty of capital is still being deployed. It’s simply being allocated differently.

SG: From a multisite provider services standpoint, there has recently been a focus on cash-pay services. Concierge medicine, longevity and wellness, medical aesthetics and med spas, which may be somewhat overplayed now, and private-pay home care are all interesting areas. Sectors that provide care in alternative settings are also attracting attention, including outsourced hospital services, school-based services, employer health, and services delivered in senior living and skilled nursing facilities. Clinical services in senior living, more specifically, have received significant investment, and I’m curious to see where that goes next. Pharmaceutical services are on everyone’s list, from commercialization and CDMOs to clinical research sites. More broadly, businesses providing outsourced services to provider practices or payers are increasingly in vogue. Examples include revenue cycle management companies, specialty EHR systems, outsourced IT providers, consulting firms, and cost containment services. The list goes on. It’s still early in some of those spaces, but they have significant runway. I expect them to attract substantial investment for some time.

SG: Each space is a little different. In some sectors, it makes more sense to grow organically. If you can develop de novo sites quickly and at a low cost, it may make more economic sense to open new clinics or sites rather than acquire them in a seller-friendly market. Applied behavior analysis, or ABA, is one example where the market favors organic growth over M&A. That doesn’t mean there isn’t selective M&A, but most platform growth strategies in the sector are based on opening new sites and expanding organically. There is still an appetite for add-ons, but an acquisition needs a compelling strategic rationale and clear value creation opportunity based on geography or service line. Buyers are more selective about the businesses they align with. In other sectors, including clinical research sites and some drug-heavy physician specialties associated with large group purchasing organizations, add-on activity remains strong. It depends on the space.

SG: For the most part, strategic acquirers are adding assets. We’ve seen divestitures, but those tend to involve businesses under stress or companies that want to focus on a specific market segment and execute there exceptionally well. It ultimately depends on the business or segment and its performance. The payvider strategy, for example, didn’t end particularly well, so we’ve started to see Optum shed some primary care assets. On the other hand, many landmark strategic transactions have occurred within the last 12 to 18 months. Strategic buyers have been the biggest driver we’ve seen.

SG: It has been very disruptive in some states. California, for example, is effectively a third rail for some private equity firms, which simply won’t consider businesses there. In the Pacific Northwest, Oregon and Washington have introduced corporate practice of medicine restrictions, state notice requirements, and review periods that add significant time and cost to transactions. The diligence process is becoming longer and more expensive for buyers, and deals are taking longer to close. That’s a very real dynamic that makes transactions more difficult in those states. If we take a California business to market, we will receive some immediate passes simply because the company is located there. Several California-heavy platforms have tried to go to market recently, and the response has been that they need to diversify into other states. I don’t want to paint an overly bleak picture. If you have a good business with a differentiated model, you can still succeed in the state. But all else being equal, when comparing a state in the Southeast, such as Georgia, with California or the Pacific Northwest, a private equity firm or buyer will generally prefer the state with less regulation and red tape. Regulation is having a real impact on transaction processes.

SG: The days of cheap debt and stacking EBITDA for the sake of stacking EBITDA are behind us. Today, the market favors good, old-fashioned organic growth and integration, and you need a strong team to execute, grow, and integrate these businesses. We’ve seen successful platforms invest in technology and AI, centralize systems, and consolidate certain functional areas. Previously, platforms could allow affiliated practices or markets to operate as local fiefdoms. Now there’s a stronger push toward centralization and standardization across practices and businesses, while preserving local autonomy where it makes sense. The platforms that generate the most value and receive the best market response are those with meaningful same-unit growth and the ability to expand organically. They’re winning contracts if they’re contract-based businesses. They’re hiring and retaining providers if they’re provider-based businesses. Basic blocking and tackling is what ultimately creates value.

SG: It has definitely helped from a margin and cost-savings perspective. The biggest impact is in areas such as clinical documentation, where AI can take the place of scribes, as well as revenue cycle management, prior authorization, and call centers. Practices and businesses have generated significant efficiencies and improved their margin profiles. We’re still early, but we’re already seeing the effects. Sponsor-backed platforms will probably be quicker to implement AI meaningfully and generate a tangible business impact. On the other side, every investor will ask during diligence about AI disruption risk: Can AI replace this entire business? That’s a difficult question to answer. I take a somewhat contrarian view. I think the pendulum may eventually swing back toward ascribing greater value to labor-intensive businesses that AI can’t replace, including doctors and physician practices. From a drug development standpoint, however, the sky is the limit. AI should help drive a boom in pharmaceutical services that continues to fuel investment and consolidation. It’s a strong area that is ripe for AI enablement.

SG: Many platforms, particularly in the provider sector, are very long in the tooth. Consolidation began in many areas in 2016, 2017, and 2018, and many of those platforms haven’t changed hands. Some have, but we’re seeing firms become more creative about providing liquidity to LPs while retaining assets and positions in portfolio companies. That includes continuation vehicles. Transformations Care Network, a large mental health platform backed by Shore Capital Partners, recently moved into another, larger fund. Minority recapitalizations are another avenue. Also in mental health, Revelstoke Capital Partners recently completed a growth equity raise for Family Care Center. I think we’ll begin to see more exits in the provider sector as larger strategic acquirers purchase PE-backed management services organizations. We’ve already seen this in drug-heavy specialties, including oncology, retina, urology, and gastroenterology, where companies such as Cencora, McKesson, and Cardinal Health have been highly acquisitive and have purchased sizable assets. Ambulatory surgery center management companies have also been active in orthopedics, cardiology, and eye care, while health systems are acquiring those ASC management companies. I expect the logjam to continue breaking. We’ve already seen signs over the last six to 12 months, and activity should continue to increase into 2027 and beyond.

SG: Healthcare services is a recession-resilient sector and a significant portion of GDP. There will always be a market for it. Many blue-chip healthcare investors have substantial capital to deploy, so we’ll continue to see significant activity and new entrants. The sector is complex and becoming more complicated, but large payers, health systems, and pharmaceutical companies are moving downmarket, integrating vertically, and remaining highly acquisitive. That should support the market for some time. Many private equity firms we speak with are more selective, have a higher bar, and want to align with high-quality assets. Quality will be rewarded, particularly for tier-one assets and strong businesses. We like to work with management teams that have built strong companies, created attractive options, and positioned their businesses to provide meaningful choice in potential partners. Some sectors will be more active than others, but we expect substantial activity across healthcare services to continue.

MMG: All right. That was Steve Grassa of Physician Growth Partners. Steve, thank you again for joining the podcast.

SG: Thank you for having me.

This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.

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