With several sectors in the Healthcare & Life Sciences industry seen as overvalued, finance executives are concerned that a market bubble is developing. However, despite bubble concerns, they expect a great deal of investment and M&A activity in health IT and outpatient services, according to a survey by KPMG LLP and Leavitt Partners.

In surveying 265 finance executives at healthcare corporations, investment banks, and private equity firms, KPMG/Leavitt found that 36 percent see the current state of the healthcare & life sciences market as a “moderate bubble” and an additional 22 percent see the market as a “bubble likely to burst.”

When asked about overvalued sectors, respondents most frequently cited biotech (71 percent), specialty physician practice management (67 percent), behavioral health (63 percent) and healthcare IT (58 percent). Medicaid plans (23 percent) and population health/primary care (17 percent) were described as the most undervalued.

“Health care stakeholders are anticipating accelerated investment activity in sectors that are enabling the transition from volume to value, such as digital technology, data analytics and outpatient services”, said Gov. Mike Leavitt, founder of Leavitt Partners and Chairman of Leavitt Equity Partners. “We believe this report can provide insights to executives and investors as they navigate in an evolving health care ecosystem.”

“Healthcare & life sciences has been among the most active sectors for M&A activity with organizations looking to add scale, provide new services or products, or gain geographic breadth,” said Carole Streicher, leader of KPMG’s Deal Advisory Practice for healthcare & life sciences. “Survey respondents see continued investment and acquisition activity in 2018, but we are seeing some concerns about valuation among market participants.”

The survey found the biggest drivers of M&A activity in the health care and life sciences sectors include:

• Accretive acquisition strategies (52%)
• Cost consolidation (46%)
• Changing payment models (39%)
• Expansion/Divestiture of service areas (36%)
• Geographic expansion/contraction (35%)
• Revenue synergies (29%)
• Regulations and legislation (22%)
• Need to deploy cash on the balance sheet (18%)