Blog

Private Equity’s Appetite for Healthcare Operators

by Evan Farrell

  • 14 Mar 2019
  • PE

Private equity is no stranger to the healthcare industry; over the past decade, investors active in the industry have increased their investment in an assortment of healthcare operators. Hospitals, dental care providers, health & wellness centres and home healthcare providers are just a few examples of the industry players targeted by private equity across the globe.

Our research shows that in 2018, there were 388 private equity-backed buyout healthcare deals completed, worth a substantial aggregate value of $31bn. These record figures mark a 45% increase in deal count and a 71% surge in total deal value compared with six years ago. One blockbuster deal that contributed to this increase was the take-private transaction of Envision Healthcare Corporation, a US-based clinical solutions and home healthcare provider. The deal was led by private equity firm KKR for a total value of $9.9bn at $46 per share in cash, representing an 8.7x EBITDA multiple.

As shown in the chart below, both the annual number of deals and their total value have increased consistently over the past five years, climbing to a new record in 2018. Comparing 2018 to 2016, aggregate deal value was $16bn higher and an additional 82 deals took place. 2017 was also a healthy year for the global healthcare industry, totalling 367 deals and $19bn in aggregate deal value. Our data demonstrates that appetite for healthcare has continued in 2019 so far, with 45 deals taking place for an aggregate value of $5.2bn as of the beginning of March 2019.

The Draw of Senior-Care Service Providers
Baby boomers are defined as individuals born between 1946 and 1964; for most, this is a statistic unrelated to private equity, but for firms within the industry, this presents ample opportunity. Although a fair proportion of baby boomers are yet to require home healthcare and assisted living, this figure is projected to skyrocket in the impending years. Societal norms are also working in favour of greater senior-care investment, with a growing number of individuals worldwide electing these living alternatives. Subsequently, private equity investment in nursing homes, assisted living centres and home healthcare services has increased over the past 10 years. As the demand for premium in-home care increases, private equity investment will follow.

Preqin defines senior-care services as companies whose primary operations involve home healthcare services or nursing homes & assisted-living solutions. The chart shows that the annual aggregate value of deals for homecare and assisted-living companies has increased fivefold from 2008 to 2018. Although the number of deals per annum has not topped its record year in 2016 of 63 transactions, aggregate deal value has continually increased: total value in 2017 was 56% higher than in 2016. This can be attributed to a flurry of recent high-value deals, one being the aforementioned take-private transaction of Envision Healthcare Corporation, including  the $2.6bn buyout of France-based assisted-living provider DomusVi SAS. The take-private deal for US-based home health and hospice operator Kindred Healthcare, Inc. was led by Humana Inc., and private equity firms TPG and Welsh, Carson, Anderson, & Stowe agreed to take Kindred private for $4.1bn. Seven months later, the transaction was completed at $8.60 per share, at an 8.6x EBITDA multiple.

A Promising Pipeline
The outlook for healthcare private equity investment remains positive. The private equity arm of Boston-based Bain Capital raised a $390mn fund in 2017 which was coined Bain Capital Double Impact, dedicated to targeting companies that operate in the health & wellness, sustainability and community-building industries. The impact fund has already made its way into the home care and assisted-living sectors in particular with the October 2018 merger of Arosa, LLC and LivHome Inc.

Additionally, Pittsburgh-based 3 Rivers Capital formed 3RC Home Healthcare, a buyout fund committed to investing in the US home healthcare arena. Referencing the acquisition of Colorado-based Amazing Care Home Health Services, Inc. in 2018, 3 Rivers Capital will look to grow this company organically and broaden its reach through strategic add-on acquisitions. 

For the past 10 years, the US has dominated healthcare investment, accounting for 59% of all private equity-backed buyout deals in the sector. For senior-care services specifically, the US accounts for 53% of the deals globally since 2008, at an aggregate deal value of $22bn. The UK is the second most active region for investment in senior-care services, recording 75 deals and $6.1bn in aggregate deal value. Looking ahead, we expect private equity firms to maintain their frequent and sizeable investments in healthcare and senior-care services operators globally.

Looking for more data on private equity healthcare investments? Take a demo of our platform to find out how we can help you.

Continue browsing industry reports, publications, conferences, blogs and more on Preqin Insights