Private Equity Investment in Healthcare 2006-2011

by Jonathan Parker

  • 20 Oct 2011
  • PE

Private equity investment in the healthcare industry has been volatile since 2006, with a peak of over $45bn of buyout deals completed in Q3 2006, dwarfing the $0.4bn recorded in the second quarter of 2009. In July 2006, a consortium of private equity firms acquired Hospital Corporation of America (HCA) in a public to private deal valued at $33bn. In the same quarter, Nycomed, a portfolio company of a group of private equity firms including Blackstone Group, acquired Altana AG’s pharmaceuticals business for €4.6bn. Together, these deals contributed over 85% of the record quarterly total value.

In contrast, in the four quarters immediately after the collapse of Lehman Brothers and the onset of the financial crisis (Q4 2008 to Q3 2009), the aggregate quarterly value of global buyout deals in the healthcare sector did not surpass $1.5bn. Although the total value of deals was depressed in this period, the number of deals was more resilient. In the four quarters beginning October 2008, the total number of global buyout deals was nearly 40% lower than in the previous four quarters, yet the aggregate value was nearly 90% lower. This shows that although there was a lack of mega-value buyouts in the period, there was still plenty of activity in the sector, albeit with deals completed at a lower average value than in the buyout boom era.

TPG and CPP Investment Board’s $5.2bn public to private acquisition of IMS Health in November 2009 signalled a return of confidence in the sector, and since this date the quarterly aggregate value of buyout deals has not fallen below $4.5bn. While this is still some way below the boom-era figures, with over $40bn of buyouts recorded in Q3 2006 and Q2 2007, the annual total value of buyouts in the healthcare sector doubled from 2009 to 2010, indicating a recovery in the market. The number of deals has also rebounded, with over 350 buyouts completed in 2010, the highest annual number in the period 2006-2011. The total value of buyouts in 2011 to date is already 40% higher than the 2010 total, and Q3 2011 saw more than 80 deals completed, with an aggregate value of over $15bn.

Recent notable healthcare deals include the acquisition of Kinetic Concepts, Inc. by Apax Partners, CPP Investment Board and the Public Sector Pension Investment Board, and Carlyle Group, as well as Hellman & Friedman’s purchase of Pharmaceutical Product Development, Inc. These buyout deals, both public to private transactions, were valued at $6.3 and $3.9bn, respectively.

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