PwC’s mid-year outlook report said the number of health services deals fell in the first half of 2026, but deal values ”remained resilient” due to “risk of re-pricing” by strategic acquirers and dealmakers.
The mid-year outlook highlights how health services trading activity is evolving amid market pressures, highlighting strategic focus, technology and portfolio optimization, the report authors wrote.
Healthcare services investors and traders entered 2026 with strong momentum, but geopolitical dynamics, policy, reimbursement uncertainties, and continued pressure from the “SaaS apocalypse” kept trading volumes in check. The health services market is feeling the weight of rising costs, labor shortages, and compressed profit margins.
“We are not seeing a pullback from healthcare deals. We are seeing a reappraisal of risk. Although fewer deals are being completed, overall deal values remain resilient as buyers continue to make large, conviction-backed investments at fairly favorable valuations. Capital remains available, but investors are looking for more evidence before committing,” Dan Farrell, PwC US health services deals leader, told Fierce Healthcare.
Although transaction volumes decreased in the first quarter, total sales remained strong due to large transactions.
According to PwC, there were 300 medical services transactions in the first quarter of 2026, down from 308 in the fourth quarter of 2025 and 324 in the third quarter of 2025. Transaction value reached $18 billion in the first quarter, and $10 billion so far in the second quarter (ending May 31). Transaction value reached $29 billion in the fourth quarter, a significant increase from $8 billion in both the third and second quarters of last year.
According to PwC, although transaction volumes are increasing, margin pressure is rewriting strategies. Farrell said the physician medical group market exemplifies this trend.
“This effect is not necessarily a lack of buyer appetite, as the sector posted a record 46% of volume in the first quarter, and the sector’s total trading activity increased year-on-year, but rather that the investment bar is being raised. Buyers are simply prioritizing assets with strong fundamentals, redemption stability, and clearly identifiable opportunities for value creation,” he said.
Continued strong activity in the Physician Medical Groups subsector led to multi-quarter expansion from 37% in Q1 2025 to 42% in Q4 2025. Year-over-year transaction volume increased by 18%, and this subsector generated 2.9 times more transactions than the next largest subsector (eHealth).
Physician practice management activities continued at a steady pace in the first half of 2026, particularly in dentistry, oncology and ophthalmology. In the first quarter, Cencora (formerly AmerisourceBergen) completed its $4.6 billion acquisition of the remaining shares in oncology platform OneOncology, and in March agreed to acquire EyeSouth Partners’ retina business for $1.1 billion.
Private equity continued to drive most deal flow, particularly through platform add-ons. On the private equity front, one of the biggest deals to make headlines was PE firm Kinderhook Industries’ private acquisition of home health and hospice care provider Enhabit. The value of this contract was approximately $762 million.
“Sponsors continue to have significant capital available, but are deploying that capital more selectively, much of it focused on platform investments and strategic add-ons that can accelerate growth or enhance the capabilities of their portfolio companies. Value creation opportunities are being identified and the focus is now on assets that can be executed within relatively short time frames, which is generally quite consistent with the private equity business model,” Farrell said.
Looking at deals at a sub-sector level, behavioral health and long-term care led market performance in the first quarter of 2026, with market capitalization expanding despite lower deal volumes, according to PwC’s report. Managed care and value-based care subsector market capitalization decreased due to EBITDA multiple compression in Q1 2026. Trading activity in these subsectors remains weak this year.
Healthcare technology, which PwC refers to as eHealth, captured 61% of disclosed deal value in Q1 2026, despite a 29% decline in deal volume.
Unexpected curveballs remain centered on policy and reimbursement trends, including sustained Medicare Advantage margin pressures and continued uncertainty in who is eligible for government assistance. These factors shorten decision-making timelines and increase the cost of strategic delays, PwC analysts wrote.
“For dealmakers, the implications are clear: First movers with policy foresight, disciplined diligence, and actionable value creation plans are best positioned to capture strong results in the second half of 2026,” PwC healthcare leaders said in the report.
In the current policy and economic environment, strategic acquirers and private equity sponsors are prioritizing scalable, cash-generating platforms with clear redemption visibility, while leveraging bolt-ons and carve-outs to sharpen portfolio focus and accelerate value creation, according to PwC analysts.
Healthcare costs continue to rise, with cost trends projected to increase by 8.5% from 2025 to 2026, increasing the need for deals to improve efficiency and protect profit margins. PwC said in its report that deals are moving away from simple growth strategies to strategic moves aimed at securing profits and scaling efficiently without increasing labor costs.
“I don’t think the first question buyers are asking now is necessarily how fast this company can grow. Historically, that’s what buyers were asking first. The first question now is, ‘What if the environment gets even tougher?’ What that means for investors is they’re spending a lot of time evaluating the predictability of redemptions and the sustainability of returns.” “These two fundamentals have moved from being nice-to-have diligence items to being investment prerequisites.”
Farrell added: “Buyers today are far less likely to underestimate the uncertainty surrounding these factors than they were a few years ago. Once they gain confidence in the stability of their platform, their focus shifts to traditional value drivers, assessing payer mix, flexibility in labor models, and an organization’s ability to successfully execute its strategy and integration roadmap. These are becoming priorities.”
While artificial intelligence capabilities and assets remain attractive in healthcare services transactions, AI is moving from experimentation to a diligent requirement, and valuations are tied to proven return on investment.
“In healthcare M&A, AI is no longer measured on its potential, but on its proof. A year ago, investors were asking whether companies had an AI strategy,” Farrell told Fierce Healthcare. “Today, they are asking whether AI is actually changing business performance. What they are asking is, one, can it increase productivity? Two, can it enhance profit margins? Third, can it support company growth without expanding the cost base by the same percentage?” That’s where the conversation has shifted in the past year, and the reason is simple: Healthcare remains a labor-intensive industry overall, and investors are increasingly looking at businesses that can grow without necessarily adding costs at the same pace.
He added, “Some of the powerful AI stories we’re seeing tend to fall into a few categories. Revenue cycle is where organizations can demonstrate improvements in collections, billing accuracy, and denial management. Workforce optimization is another where technology helps address labor constraints and improve productivity, and patient engagement continues to gain momentum as it leads to measurable improvements in access, retention, or care navigation.”
PwC expects that two forces are likely to influence health services transaction activity: reimbursement and policy pressures, and AI technologies that have proven their value.
Compressive Medicare Advantage margins, rising health care cost trends, and ongoing fluctuations in government programs have increased premiums for assets with clear reimbursement prospects and demonstrable earnings sustainability. In this environment, buyers are buying into the downside first and then into the growth, the PwC report said.
“We expect payer and provider M&A activity to increase selectively, driven less by scale and more by the need for operational resiliency, AI-enabled efficiencies, and value-based care capabilities. Investors are prioritizing assets with high margins, scalable operations, and measurable performance improvement potential,” Farrell said.
PwC recommends dealmakers prioritize portfolio moves that improve strategic focus, such as carve-outs and sales of non-core assets that dilute management interest and capital returns.
“For acquisitions, focus on scalable platforms that are viable for value creation within 12 to 24 months and are not dependent on macro recovery. Increase attention to payer mix durability, workforce model resilience, compliance risk, and credibility of technology value theory,” PwC healthcare experts said in the report.
“One of the biggest risks we see today is organizations pursuing growth before fully defining where they will compete in different markets. That approach may have been more forgiving, but today the risks are higher,” Farrell said. “Capital is not as plentiful. Healthcare cost pressures remain significant, estimated at 9%, and reimbursement dynamics continue to evolve. As a result, management teams must be more intentional about how they allocate resources and what deals they decide to move forward with. If a company maintains a business that is no longer aligned with the overall strategic priorities of the organization, it will only dilute management attention and tie up capital.”
According to the PwC report, the “winners” over the next six months are likely to be dealmakers who focus their portfolios early, prioritize assets with redemption visibility and margin durability, build value creation plans through to the diligence stage, and rigorously underwrite execution risk.
