Rising living standards in emerging market economies and heightened cost-sensitivity induced by ageing populations in advanced economies have provided private equity investors with numerous opportunities in the healthcare* industry. Despite increased competition among investors, historical data shows that private equity fund manager interest in the sector remains high, with healthcare investments accounting for an average of 11% of both the number and aggregate value of private equity deals across all industries since 2006. Preqin’s Private Equity Online contains detailed information on 3,669 private equity-backed transactions in the healthcare industry since 2006, worth a total of $386bn.
Following the sharp reduction in aggregate deal value from 2007 to 2008 (-79%), deal flow started to recover in 2009. The aggregate value of healthcare transactions rose from $13.2bn in 2009 to $34.8bn in 2011, alongside a 70% increase in the number of deals, surpassing pre-crisis levels of deal activity in the sector. The new environment for private equity-backed healthcare deals centres around more transactions being completed at lower values; the average deal size of healthcare transactions in 2006 and 2007 was $288mn and $270mn respectively, far higher than $100mn in 2014. 2015 witnessed a record number of healthcare deals, however aggregate deal value was 28% lower than the post-crisis peak in 2014 ($41.4bn) and represents a 67% fall on the record $90.3bn seen in 2007.
Within the healthcare industry, healthcare companies (including hospitals, health centres & clinics, nursing homes, dentists etc.) continue to attract the most attention from private equity GPs. Investments in such entities accounted for 235 of the 459 transactions made in 2015. Furthermore, the total value of those deals accounted for 34% of the aggregate deal value within the wider healthcare industry, totalling $10.2bn. The pharmaceuticals sector witnessed the strongest growth in aggregate value between 2014 and 2015; investments in the sector totalled $10bn last year, double the value of deals completed in the previous year.
Geographically, fund managers exhibit a strong preference for healthcare opportunities in the more developed regions of North America and Europe; deals in these regions represented a combined 85% of deal activity in 2015. Despite North American and European transactions accounting for the largest proportion (69%) of aggregate deal value in 2015, both regions experienced an eight percentage point fall in their share of total value from 2014. Correspondingly, the proportion of aggregate value represented by Asian transactions nearly doubled over the year to 24%, surpassing the 20% recorded by European healthcare buyout deals.
*Preqin’s definition of healthcare encompasses sectors such as biomedical, biotechnology, healthcare IT, life sciences, medical devices, medical instruments, medical technologies, pharmaceuticals and healthcare (incl. hospitals, health centres & clinics, nursing homes, dentists, general healthcare providers, etc.)