Bain: Healthcare deal activity hits post-crisis high

Amid macro-economic uncertainty, investors have ‘latched onto healthcare’ due to proven resilience to turbulence.

Global macro-economic uncertainty has driven investors toward the ‘safe haven’ of healthcare as they sought industries with a proven resilience to economic turbulence.

Bain & Company’s Global Healthcare Private Equity and Corporate M&A Report 2017 reveals that global healthcare private equity deal value soared to $36.4 billion in 2016, its highest level since 2007 and an increase of almost 60 percent from the 2015 total of $23.1 billion. This is despite overall private equity deal value dropping by 14 percent from 2015. Healthcare deal count also rose in 2016, to 206 from 199 in 2015.

Two mega-deals worth a combined $13.6 billion accounted for more than a third of the total deal value in the sector. In May Hellman & Friedman, Leonard Green & Partners, and GIC agreed to acquire healthcare cost management solutions provider Multi Plan in a $7.5 billion deal, and in October Blackstone Group together with co-investors agreed to buy TeamHealth for $6.1 billion. The 10 largest buyouts in the sector accounted for almost 70 percent of total disclosed deal value.

In its report, Bain notes that the surge in healthcare private equity investing is underpinned by “powerful secular and demographic forces” such as an ageing global population and more discerning clients.

“As a long-term bet, healthcare is hard to beat,” Franz-Robert Klingan, who leads Bain’s EMEA healthcare private equity practice and co-authored the report, said in a statement.

“Every one of us – at one time or another – needs and benefits from the industry’s products and services. The PE funds that make the most of this moment will be those that pick assets that have the best potential to grow, regardless of which direction the economy and other macro trends take.”

The popularity of the sector means intense competition for buyers, who are contending with specialist private equity houses, generalist firms, corporate buyers and, increasingly, institutional investors investing directly.

Bain’s analysis found that in 2016 the weighted average valuation multiple for private companies in the healthcare sector was around 13 times, two turns higher than the average for publicly listed companies. Firms have sought to take advantage of this disparity through public-to-private transactions. According to the report, three of the four largest deals of the year – TeamHealth, Press Ganey, and ExamWorks – were take-privates of US companies.

Looking forward, Klingan said investors should expect more volatility in 2017.
“As the turmoil continues, so too will the attractiveness of healthcare as a safe-haven investment,” he said in the statement.

“With an aging and ailing global population, demand for healthcare services will rise regardless of whether there are economic headwinds, tailwinds or crosswinds. But, that’s not to say all healthcare investors will have smooth sailing – sky-high valuations for healthcare assets mean that there are choppy waters to navigate.”