Where healthcare investors are putting their dollars

This was supposed to be a big year for healthcare mergers and acquisitions (M&A). Then the tariff talk began.

Combine that with structurally higher interest rates and the usual fluctuations that come with a new presidential administration—plus the fact that the next moves from the Federal Trade Commission and Centers for Medicare and Medicaid Services are a bit unpredictable right now. In fact, most of the year has been defined by uncertainty in federal rules and federal dollars.

As a result, there weren’t more deals in H1 2025 than H1 2024, according to a September trend report from consultancy KPMG.

However, the deals that did happen were bigger: Total value reached $34.7 billion, up 56% from H2 2024. This shows investors were “strategic,” KPMG wrote.

We talked with investors to find out how they’re allocating their dollars in a time when caution seems to be the name of the game.

AI’s potential. Lily Lyman, a partner at Underscore VC, a Boston-based venture capital firm that backs early-stage health software companies, said her firm is focused on investing in software that eases clinical and administrative workflows and supports data infrastructure and interoperability.

Many of these issues are being addressed by the biggest buzzword in any industry right now: AI. The global market for AI is expected to reach $407 billion by 2027, with healthcare leading the trend, per professional services firm EY.

Lyman also sees the potential for AI in the tech biospace to help speed up the process from a therapy’s inception to the time it reaches patients. The company co-led a $6 million seed funding round in June for Quilt Health, a digital health company that aims to do just that.

Going forward, she expects to see more of a focus on “compliance and auditability” around the tech, too.

One example: Underscore invested in an April seed round for Terra Security, the developer of an agentic AI platform that tests web applications for security vulnerabilities.

“We’re going to need to see more around transparency, compliance, observability, and traceability as AI gets further and more deeply embedded in these different workflows,” Lyman said.

Playing it safe. Lisa Piercey, founder and managing partner at Nashville-based lower-middle market acquisition fund Tristela Capital Partners, told us in the face of unpredictable policy, reimbursement, and regulatory changes, some things stay certain: Healthcare prices rise and the population ages.

Tristela Capital focuses on acquiring small- to medium-sized businesses that address evergreen problems relevant to care delivery. Though she would not publicly disclose which companies, she said her firm has acquired three within the specialty pharmacy, senior living, and worksite wellness spaces.

“We don’t know how [policy changes] are going to play out in the next 12 to 24 months, but what we can do is identify those sectors that we know have the biggest moat around them,” Piercey said.

In contrast with 2021 and 2022, when investors had a “growth at all cost, volume at all cost” mindset, she said she’s seeing others take a “more disciplined” approach, too.

Maia Anderson contributed reporting to this story.