Expert financial executives shared their expectations for 2022 health care deal activity during the Nashville Health Care Council’s annual panel, “Financing the Deal.” Attendees heard from investment veterans Buddy Gumina, Founder and Managing Partner, Grant Avenue Capital; Anna Haghgooie, Managing Director, Valtruis; David Schuppan, Senior Partner and Co-Head, Healthcare, The Vistria Group; Casey West, Managing Partner, SSM Partners; and moderator Tom Wylly, Senior Partner, Brentwood Capital Advisors.

Here are a few highlights from the discussion:

Health care deal activity is down. In the first quarter of 2022, the number of deals has decreased 37% compared to the previous quarter. Private equity activity has also declined 50%. In 2021, the S&P was up 27%. Year-to-date it has declined 16%, which is its worst performance since 1970. Health care stocks have been hit, too – the S&P health care index is down 9%, while the health care services index is down 24%. Acute care hospital stocks have declined 20% and home health care stocks 23%. According to Wylly, there are only four health sectors with positive public stock performance year-to-date: pharma distribution, behavioral health, other specialty and senior living.

Venture investors are concerned about a recession. “Many new venture investors have not experienced a recession, while older investors lived through the tech bubble bursting or the great recession and know what to expect,” said West. “The call is going out from venture investors to severely cut expenses and reduce burn. This is going to be a major downdraft for the venture community. The prediction is venture investing will go off the map in the second, third and fourth quarter.”

Expect broken deals. “Deal-making discussions are not as deep. Previously, the fear of missing out drove deals to come together. Now investors are more emboldened or selective about where they spend their time, and we’re frequently seeing broken deals,” Schuppan added. “Reality is setting in on both sides due to the stock market, labor, inflation and geopolitical issues. We’ll see more dead deals the rest of the year.”

Valuation matters, but so does speed. “Since I started in private equity I’ve heard the phrase, ‘There is too much money chasing too few deals.’ That’s always going to be the case,” said Gumina. “It’s about hustle, having a theme and thesis, picking your subcategories and having conviction about them. Valuation matters but so does speed. With a founder or a carve out, for example, the ability to give them a price and condensed timeline, and then hit the price and beat the timeline – it matters and builds on itself.”

COVID-19 dynamics are here to stay. “On the innovation side, COVID highlighted all the areas that need to evolve in health care, like home and community-based care, senior care and telemedicine. On the regulatory side, now we’re figuring out which to keep and how to continue that innovation and transformation,” Haghgooie said. The Centers for Medicare and Medicaid Innovation is focused on more total cost-of-care risk deals versus bundles or narrow applications of value-based care and creating a more equitable health care delivery system.”

Sectors to watch: The panelists identified several sectors with growth potential, including behavioral health, home-based care, home health and hospice care, revenue cycle management, maternal health, neurology, outsourced services, market intelligence and digital health tools enabling value-based care.