Dive Brief:
- Private equity healthcare deals topped $45.7 billion last year, out of nearly $90 billion in total global healthcare deals, in the second-highest year on record for PE firms, according to a new report out Monday from consulting firm Bain & Company.
- Transactions were buoyed by a strong first half of the year, with PE deals declining in the second half due to geopolitical tensions from Russia’s invasion of Ukraine, rising Federal Reserve interest rates and growing inflationary pressures. Private equity completed 30 deals in the second half of 2022, down from a 2021 average of roughly 50 to 60 deals each quarter, according to the report.
- Optimism for healthcare investments remains this year, according to the report, despite rising credit pressures, ripple effects from the fall of Silicon Valley Bank and increased scrutiny from the White House regarding declining standards of care in nursing homes owned by PE firms.
Dive Insight:
Private equity healthcare deals notched the second-highest volume ever in 2022, with firms securing 167 deals last year, despite healthcare deal activity in 2022 experiencing year-over-year quarterly declines on a global scale.
North America led global healthcare PE deals, but was hurt by a lack of megadeals compared to record-setting 2021 levels. Last year, no private equity deals topped $5 billion, according to the report.
High interest rates also constrained healthcare PE deals in the second half, with central bank policies making it harder to shore up adequate financing.
Deals involving providers were the most active last year, with six of the top 10 North American buyout deals targeting providers or provider-related companies.
However, the demise of Silicon Valley Bank and rising interest rates are causing financial ripple effects throughout the healthcare sector. Last week, Rock Health reported that this year was pacing to see the lowest level of funding for digital health companies since 2019, and that deals in the first quarter of the year weren’t enough to signal a “bull run.”
And, while Bain calls healthcare PE “resilient” with a “recession-proof reputation,” the report adds that the current macro environment today is distinct from previous recessions, with credit and inflationary pressures projected to hit provider PE deals the hardest, due to their exposure to increased labor costs.
“If current trends continue, this downturn will have different implications for PE activity writ large and healthcare private equity specifically,” the report noted.
If recession trends are reflected in 2022 EBITDA values for provider companies, sponsors may look to hold onto their assets, potentially reducing deal values further this year. Provider deals were cut nearly in half from the third quarter of 2022 to the fourth, according to the report.
Value-based care remains a focus for investment activity, according to the report, surrounding primary care and Medicare Advantage, with the report noting that physician interest in value-based care remains high but risk appetite is “still a work in progress.”
However, the report points to a favorable long-term outlook and notes value-based care initiatives were included in some of the largest deals last year including Amazon’s $3.9 billion acquisition of One Medical and Humana and Welsh, Carson, Anderson & Stowe’s $1.2 billion reinvestment in CenterWell Senior Primary Care.
