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Private equity dealmaking in health care services has been in a bit of a slump, at least compared to the record-breaking transaction activity that took place in 2021 and 2022.

But there are signs that PE-led health care M&A may be turning around, with the potential for increased interest in the ambulatory surgery center (ASC) space as well.

“There have been deal processes starting for a while, but we’re just starting to see some deals actually close,” Rebecca Springer, lead health care analyst at PitchBook, told ASC News.

PitchBook is an organization that provides a wealth of data on investment and dealmaking activity. In early August, it released its latest quarterly report on PE trends and investment strategies in health care services.

Overall, health care services deal activity remained relatively depressed in 2024’s second quarter, down 16.5% compared to the previous quarter, with an estimated 142 deals announced or closed. But that doesn’t tell the entire story, as dealmaking activity clearly showed signs of accelerating toward the middle of the quarter, partly thanks to a more optimistic macro-economic outlook in addition to lenders’ pipelines starting to materialize into actual deal flow, PitchBook explained in its recent report.

“We’re also finally starting to see sellers accept the new valuation environment, which is multiples a little bit lower from what you would have expected in 2021,” Springer said. “But also a more conservative [definition of] EBITDA being underwritten.”

Looking at the ASC space specifically, 2023 saw at least six add-on acquisitions executed by PE and at least one minority-investment deal. As of June 30 of this year, there have been at least two ASC add-on acquisitions and two minority investments, according to PitchBook data.

One noteworthy example from 2024: In June, Spire Orthopedic Partners, a national orthopedic platform, announced a strategic partnership with Ortho Rhode Island and its affiliated ASC. Spire Orthopedic Partners is a Kohlberg & Company platform.

As the broader M&A and investment environment improves, the ASC industry should anticipate further action.

“It’s that trend of pulling care out of the hospital into outpatient settings,” Springer said. “That’s been the case for a while. You look at a category like cardiovascular; the growth of private activity in that category for the past couple years was very much driven by certain procedures being approved for reimbursement in an outpatient setting.”

PE activity in the physician practice management (PPM) realm often comes with ASC assets.

And the PPM market is “cracking open,” according to PitchBook, with action brewing in ophthalmology, plus the ear, nose and throat (ENT) specialties. Orthopedics is similarly worth keeping an eye on over the next several months.

“There are a number of sort of big, mature ortho platforms that have come to market previously and didn’t actually trade over the past couple of years, that are mature and would theoretically be looking for an exit,” Springer said. “And so we think it’s a space to watch going forward.”

When it comes to pure-play ASC platform investments, a challenge for investors is the market being dominated by the very large players – companies such as Surgery Partners (Nasdaq: SGRY), Tenet Healthcare’s (NYSE: THC) United Surgical Partners International (USPI) and others.

“But there is still some room at the smaller end of the market,” Springer said. “Building assets and then selling them off market.”

While health care services dealmaking has hit a possible turning point, it’s important to note that buyers are still operating with an extremely cautious approach, with deals often spiked in the due diligence process.

Generally, the deals that cross the finish line tend to be those for very high-quality assets.

In its report, PitchBook projected “a gradual acceleration in deal activity throughout the second half of 2024.”

“It’ll be interesting to see what the sort of high-level deal numbers look like,” Springer told ASC News.