Investors can learn about targets’ scalability through interviews with functional leaders and in-depth independent assessments. HCPEA is an association of private equity firms committed to building strong, successful healthcare companies. Subscribe to Bain Insights, our monthly look at the critical issues facing global businesses. In that context, individual companies usually fulfill a specific need—for example, digitizing core processes or providing digital health solutions. Similarly, a workforce-management company has successfully pursued acquisitions of companies that cover adjacent areas of healthcare-workforce management, including solutions for contingent-workforce payment and vendor management. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. This assessment will likely require a combination of technical reviews and in-depth customer interviews to understand customer perceptions of the solution. Large buyout firms continued to show interest in healthcare-heavy assets. It is one of high returns due to the extensive use of debt. Featured Companies Featured companies are operating and private equity platform companies interested in networking with others in the investment community. In our experience, markets of less than $1 billion are safest for maturing healthcare tech companies because they are too small to appeal to large corporate investors. Moreover, 2020 Bain research shows that US healthcare industry profit pools will grow at a 5% annual clip over the next five years. Cimarron Healthcare Capital is a Salt Lake City-based healthcare-focused private equity firm. 8 Together, we achieve extraordinary outcomes. Please click "Accept" to help us improve its usefulness with additional cookies. Based in New York, the firm seeks to investment between $20 million and $50 million in healthcare companies providing services and products and distribution. Because many healthcare tech solutions do not fully address customers’ needs, good-to-great solutions can establish market leadership positions relatively quickly, even with sales cycles that can stretch into years. To ensure returns in the face of high valuations, more investors determined that they should no longer depend on multiple expansion, and must design more robust value-creation plans. This tardiness is due partly to the difficulty of managing the range of stakeholders, regulations, and privacy concerns involved in digitizing records and processes that affect sensitive information. Companies that can overcome these common but substantial obstacles would have a rare advantage over their competitors that cannot aggregate and repurpose customer data. Learn about European and US PE firms have a significant opportunity to capture value from strategic healthcare-tech investments. Dealogic; Multiples are calculated using data from announced (and not withdrawn) deals greater than $5 million for which transaction multiples are available. The healthcare sector is drawing interest from private equity investors this year, with seven deals announced since Jan. 25. However, careful due diligence that focuses on firms that are relatively insulated from short-term disruption can mitigate risks for PE firms. Stay ahead in a rapidly changing world. To evaluate how well the company attracts and retains talent, investors should examine employee-churn data and interview a cross-section of employees for insights on the company’s talent blind spots. To help the solution evolve as it scales, the company should have a clear road map for R&D, product improvements, and technology initiatives. ArchiMed is a leading private equity firm focused exclusively on the healthcare industry. Preqin, press searches. The McGuireWoods Healthcare Private Equity Team previously published a multi-part series highlighting some of the more active private equity investors in the healthcare space. 1 For more than 30 years, AGG’s team of healthcare attorneys has been a trusted advisor to private equity funds and their portfolio companies as they look at the legal hurdles of investing in healthcare industries. By Andres Saenz. LLR invests $25M – $200M of equity in private companies with proven, scalable business models and strong organic growth. March, April and part of May saw private equity investment in healthcare come to almost a standstill. The UK healthcare and pharmaceuticals sector continues to thrive. tab. Ardent student of consumer behavior. Private equity has record amounts of capital that needs to be deployed, but valuations and pricing are being severely affected by current market volatility. If you would like information about this content we will be happy to work with you. PE firms’ trademark investment, expertise, and pursuit for continuous improvement in healthcare tech can generate investor returns while helping create better outcomes in healthcare. To keep up with growth, the tech stack must have the capacity for rapid increases in the number of jobs and users. Discover why DW Healthcare Partners is uniquely positioned to help you accelerate growth and be successful. Nikhil Sahni, Pooja Kumar, Edward Levine, and Shubham Singhal, The productivity imperative for healthcare delivery in the United States, February 2019. David Champagne is a partner in McKinsey’s London office, where Alex Davidson is a consultant, Jamie Littlejohns is an associate partner, and Dmitry Podpolny is a partner. And many prospective PE targets in healthcare tech offer solutions in unproven markets that are vulnerable to disruption, further dampening investor interest. Healthcare private equity activity in 2019 posted a very strong performance relative to the prior year. These companies can then grow and cement their position by providing analytics services for the data they gather. Having teams with relevant industry and technical knowledge work together is not a new idea. We are comfortable making minority or majority investments and seek to partner with business owners and managers who share our focus on long-term value creation. Private equity firms utilize our comprehensive due diligence of healthcare targets to help uncover and assess key issues and regulatory and compliance risks associated with an investment and rely on the sophisticated guidance of our healthcare regulatory and compliance and investigations counsel. We'll email you when new articles are published on this topic. an increased appetite for select healthcare-heavy assets, along with pipeline risk in life sciences. The average deal size rose roughly 25% as funds focused more on larger assets. Cimarron Healthcare Capital is a Salt Lake City-based healthcare-focused private equity firm. Thus, this approach can yield rich returns and augment an already strong position. Various trends, including funding deficits in public healthcare systems and price pressures on pharmaceuticals, have driven healthcare players to seek ways to reduce operating costs and improve productivity. The due-diligence process should help investors make sure that no vertical- or market-specific elements could make a product difficult to scale beyond its original context. 6. We are private equity investors with over 110 years of combined experience and more than 25 healthcare investments. Featured Companies Featured companies are operating and private equity platform companies interested in networking with others in the investment community. Something went wrong. In the early days of the healthcare tech market, most healthcare tech firms presented more appropriate investments for venture-capital and growth-capital funds, but many are now mature enough to benefit from PE investment and guidance. Data and analytics have become prominent, as two notable deals of the year involved companies that create and compile data for customers—Definitive Healthcare and Press Ganey. However, data-privacy regulations, the need for consent (often from patients), intellectual property, data quality, or simply a lack of customer participation often prevent companies from achieving this kind of growth. By the Numbers. For instance, some payment-management systems are specific to their provider environments and countries or were created to meet esoteric regulatory demands in their original markets. Healthcare tech deals made up only 7 percent of European and US healthcare deal volume from 2015 to 2018, and 83 percent of global healthcare tech deals occurred in the United States over this period (Exhibit 2). The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Flip the odds. Digital upends old models. Discover why DW Healthcare Partners is uniquely positioned to help you accelerate growth and be successful. Likewise for healthcare tech data, which was found by searching for the term “healthcare IT.” There were no size restrictions for deals. Santiago Comella-Dorda, Krish Krishnakanthan, Jeff Maurone, and Gayatri Shenai, “. However, the industry will soon have no choice but to catch up—fast. Timing is an important factor, regardless of the submarkets PE investors decide to address. 22 minute read 25 Oct 2019 . The EQT Private Equity Advisory Team. Often stereotyped as targets more suitable for venture capital than for PE, healthcare tech sees relatively few deals, especially outside the United States. For healthcare tech companies, strategic M&A and roll-ups can facilitate geographic expansion, allow companies to pursue adjacent business lines, and potentially monetize data. ArchiMed serves as a strategic and financial partner to European and North American small and middle-market businesses in targeted segments of healthcare, including pharmaceuticals, medical devices & technology, healthcare IT and consumer health. Private equity firm CVC Capital Partners has become an investor and major shareholder in System C Healthcare, the UK supplier of health and social care software and services. In the face of growing macroeconomic instability around the globe, total disclosed deal values climbed to $78.9 billion dollars in 2019, the highest values on record. These companies can benefit the most from investment and expertise (Exhibit 3). Investors are already hesitant to invest in young companies. Private equity firms invested over GBP140 billion across 1,227 healthcare deals in 2019, with the sector now accounting for 14 per cent of total deal value. Private equity funds, senior and mezzanine lenders, investment bankers, C-level executives, consultants and principals in the healthcare and life sciences industries. The company further supported the move with the recent acquisition of an industry-leading data-management and analytics company. 1. The McGuireWoods Healthcare Private Equity Team previously published a multi-part series highlighting some of the more active private equity investors in the healthcare space. PE-friendly healthcare-tech investments must be scalable. Before PE firms invest in healthcare tech, they must adjust their mind-set about pursuing targets that are smaller than typical PE investments. February 19-20, 2020. 4 Admittedly, healthcare tech is complex, making it difficult to understand the industry and identify good assets. Technological assessments from PE funds’ technology teams will also be necessary to confirm that the target has a sound, flexible tech stack (the frameworks and tools developers work with). Stefan Biesdorf and Florian Niedermann, “Healthcare’s digital future,” July 2014. healthcare are largely short-term financial transactions – designed to make ‘outsized returns’ for themselves and their limited partner investors in a three to five year window. Healthcare lags behind other industries on digitization. Private-equity investment represents only 6 percent of all healthcare corporate-divestiture activity. Please use UP and DOWN arrow keys to review autocomplete results. Investors that take decisive action while focusing on targets with growing businesses that compete in attractive markets, with strong prospects for growth, can benefit most. Based in New York, the firm seeks to investment between $20 million and $50 million in healthcare companies providing services and products and distribution. Meanwhile, an increasingly complex regulatory environment means that digital solutions are the best way to ensure monitoring and compliance in some parts of the healthcare market. G Square Healthcare Private Equity LLP 28 Savile Row Mayfair London W1S 2EU United Kingdom Tel +44 (0) 20 3757 0160 The healthcare and life science markets are in a period of dramatic change. In Europe, volume stayed relatively flat while disclosed value rose about 11% to a new high of $19.7 billion, boosted by the $10.1 billion Nestlé Skin Health acquisition. The summary of a study by National Bureau of Economic Research: The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care. A roll-up occurs when investors acquire multiple companies in the same market and merge them. Looking ahead, the healthcare and life science sectors are set to continue to be highly sought-after for private equity investors, due to the previously mentioned trends. Investors focus on creating good returns even if they don’t rely on expansion of multiples. We have supported nearly 40 healthcare companies investing over £315m in the sector. 8. However, safely gathering and monetizing data may be the ultimate accomplishment for healthcare tech companies. In 2018, private equity funds managed by Blackstone – together with Canada Pension Plan Investment Board and GIC – acquired a majority stake in Thomson Reuters’ Financial & Risk business, now known as Refinitiv. As with technology road maps, the company should have a corresponding hiring plan, organizational structure, and training plan that accounts for future growth. PE firms should invest in such companies now to capture disproportionate benefits. Acquisition targets’ products may not necessarily contain proprietary code, but they should possess advantages that aren’t easily replicated by entrants from other fields. Yet despite a less favorable macro environment, global buyout deal value reached $444 billion, lagging 2018 but on par with the past five years. To support increased demands, the company must have the ability to increase infrastructure such as customer service and implementation teams. Bookmark content that interests you and it will be saved here for you to read or share later. Rising disease rates, new innovative therapies, increased enrollment in Medicare Advantage and continued (though slowing) growth in pricing will more than offset ongoing government reimbursement pressures and consolidation in some sectors. Private-equity-owned freestanding emerging rooms (ERs) are garnering scrutiny because of their proliferation and high rates. Marathoner. We use cookies to improve website functionality and performance throughout Bain.com. We are private equity investors with over 110 years of combined experience and more than 25 healthcare investments. Exacerbating the complexity of deal sourcing and due diligence is the difficulty of effectively coordinating healthcare and technology teams within PE firms. North American activity rose modestly, and disclosed value jumped to $46.7 billion, compared with $29.6 billion in 2018. These traits are especially important because of healthcare customers’ “stickiness” and long contract cycles, which make new-business development critical to sustained growth. Trusted advisor to leading private equity professionals and their portfolio companies. Preqin, press searches. Several factors account for the industry’s durable investment performance, notably strong underlying demand for healthcare. For instance, some companies provide services and products to support pharma companies’ medical affairs functions, which often come with a software tool such as a workflow-management tool for publications. It’s clear that HCIT has advanced to a new stage. 5. The EQT Private Equity Advisory Team consists of more than 100+ Investment Advisory Professionals based in Amsterdam, Copenhagen, Helsinki, Hong Kong, London, Madrid, Milan, Munich, New York, Oslo, Paris, Stockholm, Shanghai, Singapore, Sydney and Zurich with focus on core sectors in Healthcare, TMT, Services and Industrial … 22 minute read 25 Oct 2019 . That trend was certainly on the path to continue in 2020 when the COVID-19 pandemic brought everything to a screeching halt. Formation Capital is a leading private equity investment firm with dedicated healthcare industry professionals in seniors care private equity investing. For example, to meet a wider array of customer needs and expand the amount of data it can aggregate, a provider of clinical-trial data-management software is moving into analytics and benchmarking by methodically acquiring companies that offer complementary products and services. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Healthcare companies have a similar opportunity. Their levers range from buy-and-build, to buy-and-merge, to commercial excellence tactics that will grow organic sales. Subscribed to {PRACTICE_NAME} email alerts. Press enter to select and open the results on a new page. Deal-volume data for all US and European PE deals in the healthcare sector was gathered using Preqin database’s classification. Unfortunately, this collaboration is sometimes difficult to achieve. Investors should also speak to nonmanagement employees to understand if best practices such as agile methodologies are embedded in the company. There were 313 healthcare deals in 2019, totaling $78.9 billion in disclosed value (see Figure 2). Discussing the top priorities private equity investors should focus on under the Biden administration, including healthcare legislation's future … cookies, McKinsey_Website_Accessibility@mckinsey.com, The productivity imperative for healthcare delivery in the United States, Why the evolving healthcare services and technology market matters, Private Equity & Principal Investors Practice. Investors can identify such markets by their low technological penetration, high levels of paper use, and regulatory trends that encourage or force the use of technological solutions. 4. G Square Healthcare Private Equity LLP 28 Savile Row Mayfair London W1S 2EU United Kingdom Tel +44 (0) 20 3757 0160 By the time a company is a target of a PE firm, its solution should be comparable to competitors’ offerings in its ability to meet customer needs. Investors may be especially dissuaded if deal sourcing and due diligence require substantial cooperation between interdisciplinary teams in healthcare and technology. Moreover, the first crop of healthcare tech companies, many of which were acquired by growth funds between 2010 and 2014, will soon be ready for PE consideration as growth funds prepare to exit after a typical five-year holding period. Nontech healthcare companies can sometimes have technological components that bolster their core (nontechnological) services or products. Gilde Healthcare is a specialized European healthcare investor managing EUR 1.4 billion (USD 1.5 billion) across two fund strategies: venture & growth capital and private equity. Global Healthcare Private Equity and Corporate M&A Report, Please select an industry from the dropdown list. Upward movement in those regions was partially offset by a decline in Asia-Pacific volume due to declining activity in China; however, disclosed value in the region was still over 60% above its five-year average, reaching the second-highest level since the most recent recession. As a leading healthcare transaction advisory firm, we represent physician practices in sales to private equity or strategic buyers. How private equity can improve the health of healthcare. 3. What’s more, investors are sometimes unable or unwilling to underwrite high multiples for healthcare tech companies for fear that the assets are not worth their valuations; venture-capital funding tends to bid up healthcare tech companies’ valuations, after which interested PE investors must compete against each other as well as established healthcare players for targets. Healthcare private equity activity in 2019 posted a very strong performance relative to the prior year. Gilde Healthcare's venture & growth capital fund invests in health tech and therapeutics. Healthcare private equity, however, had another banner year. Another solid year means healthcare expanded its share of overall deal activity. Similarly, the nontechnical components of the business must also be able to accommodate growth. ArchiMed serves as a strategic and financial partner to European and North American small and middle-market businesses in targeted segments of healthcare, including pharmaceuticals, medical devices & technology, healthcare IT and consumer health. collaboration with select social media and trusted analytics partners Larger deals signal investor confidence in putting a greater share of the portfolio in healthcare assets. 2 Biopharma had an exceptional year as disclosed value grew 146% to $40.7 billion. Never miss an insight. There were 27 deals greater than $1 billion in value in 2019, compared with 18 such deals in 2018. Private equity-backed practices also try to increase revenue by adding more-lucrative procedures, according to doctors interviewed by Businessweek. © Healthcare Private Equity Association 2500 Williston Drive Charlottesville, VA 22901 United States [email protected] Healthcare digitization means that firms that invest in healthcare tech now rather than later are more likely to capture value from growth within crucial markets. The Ritz-Carlton Chicago 160 East Pearson Street at Water Tower Place Chicago, IL 60611. Health equity framework Health equityHealth equity Some studies say that up to 80% of health outcomes are affected by social, economic, and environmental factors. BelHealth Investment Partners — Founded in 2011, BelHealth is a healthcare private equity firm focused on lower middle-market companies. Such markets should also present material barriers for entry. Competition for high-quality assets has intensified, pushing valuations steadily higher. Private equity has record amounts of capital that needs to be deployed, but valuations and pricing are being severely affected by current market volatility. March, April and part of May saw private equity investment in healthcare come to almost a standstill. Healthcare companies with a strong technology component are valued, on average, at 17.1 times earnings, compared with 14.9 times average across the industry, with lower multiples for companies without strong technological components; for example, pharmaceuticals average 15.1 times and healthcare providers average 11.4 times (Exhibit 1). Use minimal essential How can investors gain a foothold, even as the ground shifts beneath their feet? For example, material-tracking software in clinical settings, especially in surgical and critical-care environments, can capture data that allow hospitals and healthcare providers to improve clinical performance, procurement processes, and material-management practices. Global Healthcare Private Equity and Corporate M&A Report 2020. ArchiMed is a leading private equity firm focused exclusively on the healthcare industry. Healthcare tech companies in diverse global markets are pursuing similar moves (see sidebar, “Creating value through M&A and roll-ups”). We work with ambitious leaders who want to define the future, not hide from it. Geopolitical conditions ranked as the second-highest concern on average for PE fund general partners (GPs) worldwide, behind overheated asset valuations, a recent Preqin survey found. While corporate acquirers can create intense competition for assets, they also can serve as partners to PE investors that thereby gain access to highly valued assets. Consistent with most of the past two decades, North America remains the most active region, and provider and related services the most active sector. The sector rose by $24.2 billion, including major deals such as the Nestlé Skin Health carve-out and also a number of others over $1 billion, such as Advarra and China Biologic Products Holdings. Attractive markets should be growing and have room for growth. As in past years, corporates used M&A to build their core capabilities and place option bets on potential disrupters in their respective industries, while simultaneously divesting underperforming and noncore assets. Here we highlight ways that these firms can identify winning healthcare-tech investments. We sit at the crossroads of entrepreneurship, innovation, capital and world-class leadership in healthcare. Reinvent your business. Netflix used data to compete in movie and TV production. This comes from an aging global population, a growing incidence and treatment of chronic disease, and rising incomes in emerging markets. Ardent student of consumer behavior. The best candidates demonstrate new revenue-creation opportunities, increase the efficiency of existing processes, and reduce costs or risks. The average deal size rose roughly 25% as funds focused more on larger assets. Stefan Biesdorf and Florian Niedermann, “. Our experienced private equity team has advised on hundreds of healthcare deals covering the gamut of clinics, hospitals, inpatient/outpatient services, practice management, laboratory services, information technology, managed care, devices and supplies, business processing outsourcing, revenue cycle management and more. In recent years, well-managed healthcare tech companies have performed even better, with some exits at 23 to 25 times EBITDA. © Healthcare Private Equity Association 2500 Williston Drive Charlottesville, VA 22901 United States [email protected] However, investors cannot afford to rest on their laurels, as both Berglung and Peterseim expect that the landscape is likely to continue to change rapidly, particularly with the rollout of the Covid-19 … Accelerating Growth Ampersand leverages its sector expertise, expansive operating networks, and global presence to support entrepreneurs in building market leading companies. Entering the market now also means that PE investors can more easily roll up assets in fragmented markets and build scale and market share. Search terms for healthcare tech deals were “healthcare technology, software, and services” and “medical technology” and were then manually curated to match the definition of healthcare tech used in this article. Private-equity investment represents only 6 percent of all healthcare corporate-divestiture activity. 5 One British patient-safety technology company combined with another in a different country to achieve a significant presence in their home markets. In fact, healthcare tech companies are already pursuing roll-ups: an eCOA company acquired seven small companies in the field between 2009 and 2017. Investment by private equity in the healthcare sector has exploded over the last decade. *I have read the Privacy Policy and agree to its terms. This paper studies … For more than 30 years, AGG’s team of healthcare attorneys has been a trusted advisor to private equity funds and their portfolio companies as they look at the legal hurdles of investing in healthcare industries. Products, services and HCIT supporting R&D and commercialization efforts of drugmakers continue to be of highest interest, but early-stage technology investment also continues to grow. Buyout funds also retained minority interests in assets upon exiting, allowing these funds to lock in a portion of gains at current valuations while also maintaining access to continued upside. The private equity model in healthcare is one of low risk, as third party government and private insurers guarantee payments.