The total value of behavioral care deals was down by 18% in the first half of 2024, compared to 2023.

That’s according to PWC’s new mid-year report on deals in the health services sector. The report counted a total of 81 behavioral care deals in the first half of the year, equating to a 2% volume decrease year over year.

But behavioral health isn’t alone in the deal slump. The value of health care deals is down by 4% year over year. Still, the overall deal value in health care is up 18%.

The report’s authors said that new regulatory changes could potentially hinder dealmaking this year.

“Increased regulatory review continues to be top of mind for dealmakers in the health services sector, with regulators focused on cost of care as well as health equity and access to care,” authors of the report wrote. “This is occurring at the federal level with Federal Trade Commission (FTC) antitrust cases, and increasingly at the state level, including recently introduced legislation in California and other states that would provide further oversight over transactions between private equity or hedge funds and health care facilities or provider groups. These regulatory actions illustrate the increasing level of review applicable to private equity transactions within the health services sector. The potential effects on deal flow will be a focus point over the coming months for all investors, but particularly for sponsors.”

In 2023, the antitrust divisions of the U.S. Department of Justice and the Federal Trade Commission withdrew their decades-old guidance on mergers in the health care space, calling the policy “outdated.” Several industry insiders said this was a signal to the health care sector that more stringent measures were to come.

The Biden administration has taken a proactive stance, releasing a slew of new initiatives aimed at combating anti-competitive mergers and practices that could increase health care costs for patients.

Then, in March of 2024, the Federal Trade Commission, the Department of Justice’s (DOJ) Antitrust Division, and the U.S. Department of Health and Human Services launched a new investigation into private equity and other corporate investment control in the healthcare industry.

While the regulatory changes could mean investors are proceeding with caution, the PWC report projects a strong second half of 2024.

“While the sector continues to be impacted by headwinds including increased regulatory pressure, dealmakers have become more accustomed to the current interest rate environment and have adapted to the correlated decline in price to earnings multiples,” authors of the report wrote. “These factors, combined with broader market tailwinds such as capital availability and a need for sponsors to facilitate exits and return capital to limited partners, should continue to bolster deal activity throughout 2024.”