Global Healthcare

by admin on 01/04/2018 5:03 AM

Global Healthcare Private Equity and Corporate M&A Report 2017

Bain report | April 19, 2017

By Kara Murphy, Nirad Jain, Joshua Weisbrod, Franz-Robert Klingan,
Vikram Kapur, Justin Doshi and Jeff Haxer

Turmoil creates opportunity, and in 2016, there was plenty of both.

Private equity investors contended with a world of uncertainty.1 Would the long-running global recovery gain strength, falter or muddle along? Would the UK vote to exit the EU? Who would win the US presidential election?

Amid all this volatility, investors latched onto healthcare as a safe haven—that is, an industry with proven resilience to economic turbulence. The growth of healthcare is powered by several immutable long-term trends: an aging global population, a rising incidence of chronic diseases, an expanding demand for quality services and an ongoing need to deliver those services more efficiently. 

Impelled by this logic and helped by low interest rates and readily available capital, funds pushed the total disclosed deal value for healthcare private equity to $36.4 billion in 2016, the highest level since 2007. It was a banner year in spite of a welter of questions surrounding the industry—especially in the US, the world’s largest healthcare market. What would happen to the Affordable Care Act, and what would that mean for insurance reimbursement rates? Would two pending megamergers between US health insurers be blocked by the courts? Would pharmaceutical prices come under greater pressure? In this kind of environment, could the sky-high valuations for deal targets that had prevailed during the past few years be sustained? Would multiples continue to expand?

Given these concerns, investors selected their targets with care. They focused on those areas that were less exposed to regulatory uncertainty, including outsourced services, healthcare IT and retail health providers. PE funds took advantage of a disparity between public and private valuations for some healthcare assets, prompting a surge in public-to-private transactions. The flip side of this trend was a falloff in the number of IPOs amid a modest decline in overall exit activity.

With many buyers chasing a limited number of choice targets, valuations continued to rise. Healthcare deal teams at traditional PE buyout funds faced heated competition for deals as new categories of players entered the fray. They included generalist PE investors, technology investors, sovereign wealth funds, pension funds and family offices. And while the total value of corporate M&A in healthcare fell sharply in 2016 (due mostly to a dearth of megadeals), corporate buyers remained active across the healthcare spectrum, often vying with funds for deals.

In this challenging environment, successful healthcare PE investors can be guided by a few key principles:

  • Focus on category leaders. Companies that are proven leaders in their segments are better able to withstand macro downdrafts. . .
  • Embrace efficiency. Whatever happens with economic growth and government regulation, healthcare companies worldwide will continue to be under pressure to deliver services more efficiently. . .
  • Be creative. With valuations high and returns less predictable, PE investors are spreading the risk by partnering with other funds, as well as with corporate buyers. Executing large, expensive buyouts requires careful preparation, and many funds are entering into these sizable deals with preset plans for quick roll-ups or spin-offs.

Read the entire report at

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