Healthcare continued to be a growing area for private equity (PE) investors in 2014, according to Bain & Company's fourth annual Global Healthcare Private Equity Report.
The report, developed with collaboration with the Healthcare Private Equity Association, reveals the value of new buyout investments in the healthcare sector globally hit a three-year high last year at $29.6 billion—nearly double 2013 levels—despite the number of deals declining by some 10 percent.
Conditions for exits were also strong last year, with the number of healthcare buyout-backed exits slightly increasing from 2013, the previous high point of the decade. Yet, investors faced steep valuations and fierce competition thanks to strong financial markets, the deep pockets of strategic buyers and the large number of healthcare investors competing to put capital to work, according to Nirad Jain, a Partner at Bain and author of the report.
"There is great excitement and opportunity in the healthcare space, and that has grown over the last two decades," Jain says. "It used to be that prominent healthcare PE deals occurred only here and there, but momentum has steadily ticked up. In 2014, they made up 11 percent of PE buyout deals overall. This progression is a result of disruptive changes in healthcare that are enabling access to more efficient and affordable care, while also creating opportunities for PE to aid and accelerate those changes."
The healthcare industry is also likely to see strategic firms carving out more non-core assets. Bain expects carve-outs will continue to be an important source of assets for PE investors, especially for the larger funds seeking $1 billion-plus scale assets, and particularly while strategic players are busy digesting all of the M&A activity from 2014.
Other key findings: The payer sector continued to capture investor interest in 2014, tallying 12 buyout deals worth $5.3 billion, up from 8 deals worth $3.9 billion in 2013; The provider and related services space remained the most popular sector for PE investors in 2014, representing nearly 50 percent of the year's global healthcare buyout deal volume; Medtech activity was high especially in Europe, as well as in China, where regulatory changes spurred fast-track technology approvals for medtech products and fueled private investment in the provider space. Overall, large corporate carve-outs helped buyout deal values soar to nearly five times the level seen in 2013.
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