#United States #New York #Bain Company #Biopharma #Healthcare Private Equity

Rise of Global Healthcare Private Equity in 2024

The landscape of healthcare private equity (PE) witnessed a remarkable transformation in 2024, with total deal values skyrocketing to an estimated $115 billion. This staggering amount marks the second-highest record ever, driven by a series of significant transactions that reshaped the industry. According to Bain & Company's latest report on Global Healthcare Private Equity, the surge was primarily propelled by a noteworthy increase in megadeals.

Megadeals Dominate the Scene

The year saw five transactions surpassing the $5 billion mark, a significant increase from just two such deals in 2023 and one in 2022. Such megadeals have been a game changer, revitalizing investor confidence and expanding the boundaries of what is possible within healthcare investment. North America stood out as the largest market, contributing 65% of global deal value, while Europe and the Asia-Pacific region accounted for 22% and 12%, respectively. Despite a troubling 49% decline in deal volume in Asia-Pacific since 2023, North America and Europe experienced a wave of activity, reinforcing the global healthcare investment landscape.

A Rebound in European Deal-Making

In Europe, deal volumes experienced a robust rebound, eclipsing the previous peak from 2021. This resurgence was largely fueled by smaller transactions during the first half of the year, particularly in the biopharma and medtech sectors. Companies entering these domains benefitted from their ability to scale efficiently across the European landscape. With a stabilizing macroeconomic environment, Bain's optimism for continued growth in European deal-making is promising.

Biopharma Sector Leads in Value

When it comes to the biopharma sector, the appetite for large-scale deals continues to dominate. While the total buyout values reached unprecedented heights, the overall volumes in the biopharma and life sciences tools sectors saw a decline by 5% and 10% respectively since 2020. Contributing factors include a challenging environment for buyers and sellers to agree on sale prices and a marked reduction in venture capital funding impacting pharmaceutical services.

A Surge in Healthcare IT Transactions

Meanwhile, the healthcare IT space experienced a remarkable resurgence in deal activity in 2024. With providers under growing financial pressure and navigating new reimbursement models, healthcare organizations are investing heavily in core systems that enhance efficiency. Consequently, private equity firms are stepping up their investments in assets that facilitate workflow improvements, aligning perfectly with the healthcare provider's urgent needs.

Four Transformative Trends in Healthcare PE

Bain's report identifies four key trends reshaping the healthcare private equity landscape:
1. Mid-Market Funds Innovate: Historically outperforming the broader market, mid-market healthcare-focused funds are adapting their strategies to maintain activity, resulting in their robust fundraising achievements—raising around $59 billion since 2022, representing a 40% increase over the preceding three years.
2. Carve-Outs Create Value: The trend of healthcare carve-outs is on the rise, driven by public companies seeking shareholder value improvements and private equity firms eyeing underappreciated businesses for acquisition. This opens new avenues for value creation, particularly amid reduced sponsor-to-sponsor deal activity.
3. Exit Value Maximization Essential: Exits within healthcare private equity witnessed a decline of 41% from the peak in 2021. High interest rates, combined with misalignment between buyer expectations and seller offers, prolonged hold periods. For successful exits, businesses must adopt an objective view of performance and development, facilitating planned ideal future value creation.
4. Evolving Asia-Pacific Investment: As investments in the Asia-Pacific region mature, firms are looking beyond China, with India emerging as an attractive alternative owing to its growing middle class and economic stability. Countries like Japan and South Korea are also observing increased deal volume fueled by demographic trends and economic growth.

Conclusion

In conclusion, the outlook for healthcare private equity looks promising moving into 2025. As deal multiples stabilize, investors can expect a more favorable environment for transactions, bridging the gap between buyer and seller expectations. The anticipated lower interest rates in the U.S. and steady economic conditions in target markets like Japan and India imply favorable conditions for investments. With an increase in assets primed for acquisition and growing pressure from LPs for liquidity, the stage is set for a pronounced boost in sponsor exits, enriching the healthcare investment landscape further.