European healthcare is alive and kicking. CVC head of European healthcare Cathrin Petty has been charged with leading the firm’s “very active” pursuit of assets in the sector.
“We’ve seen about a fourfold increase in [healthcare] opportunities taken to the investment committee since the beginning of the year,” she says. In late September, CVC Fund VI agreed a $703 million carve-out of Teva Pharmaceutical Industries’ non-US women’s health assets, comprising more than 20 generic and branded medicine products.
Petty’s 22 years of healthcare investment and advice saw her appointed to the newly created CVC role in July last year. The non-executive director of Greater London’s Strategic Healthcare Authority formerly served as head of EMEA healthcare at JPMorgan and partner at Apax Partners life sciences and healthcare team.
CVC does not assign sector allocation targets but expects to reach around 10 percent exposure to the space in its €15.5 billion 2017-vintage buyout fund, Petty says. The firm currently has no plans to raise a dedicated healthcare vehicle.
“[Our] peers are somewhere between 10-20 percent invested in healthcare. Our expectation is that in building and putting this team [together] we’ll be at the bottom of that range and hopefully by the time we go out for our next fund we’ll be slightly higher.”
Despite this renewed interest, CVC is by no means a new entrant to the healthcare space. CVC Fund VI completed at least four acquisitions in the sector, including Spanish nursing home operator Vitalia, international pharmaceuticals company Alvogen and Greek hospital operator Metropolitan Hospital Group.
“Right now you’ve got a real uncertain outlook in terms of how that market’s getting priced and reimbursed.”
CVC’s latest deal comes amid concerns over the appeal of US healthcare investments. Petty cited recent controversies over pharmaceutical pricing, Donald Trump’s potential changes to the payment system and consolidation of wholesaler channels as having impacted confidence in US deals.
“Right now you’ve got a real uncertain outlook in terms of how that market’s getting priced and reimbursed with all the co-pay changes throughout there,” Petty says. “As a result, we’re being very thoughtful on new investments there at this time.”
By contrast, centralised payment and provider systems have contributed to “steady and consistent” European drugs pricing over the past 20 years, Petty says. This appeal means continental healthcare targets are no exception to the bloated valuations currently distorting most global private equity markets.
EMEA healthcare exits generated a 12.4x average implied enterprise value/EBITDA multiple between July 2016 and August 2017, according to S&P’s EMEA Private Equity Market Snapshot. Healthcare was the second most expensive sector for M&A activity at a 13.1x multiple, behind only real estate.
Petty will divide her time evenly between CVC’s existing and new investments. “I would expect us to be getting closer to where our peers are in terms of investment in the healthcare space.”