The global healthcare market is an important area of investment for the private equity community.
Against the background of ageing populations, the growing affluence of the emerging markets and increased pressures on public budgets, private equity’s success in healthcare will continue to focus on the dual goals of driving efficiencies and improving healthcare outcomes.
The global medical devices and pharmaceuticals M&A markets are dominated by strategic buyers with private equity deal activity being focused on niches in which it can differentiate itself.
Beyond these two subsectors, healthcare providers and outsourced partners remain attractive to national and international plays for buyout houses of all sizes.
Skillcapital’s sector team also focus on the global education market which has been another dynamic area of investment for the private equity community.
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On both sides of the Atlantic private equity has invested heavily in companies providing elements of healthcare and/or social care.
Private equity has been attracted to businesses delivering services in both a real estate-based environment (acute and mental health hospitals, special educational needs schools, elderly care homes, dentistry etc.) and into the home (supported living, domiciliary care, etc.), with end customers including both the private sector (insurers and private payors) and public bodies.
Frequently the leader of consolidation in historically immature markets, private equity will continue to be an important driver of change in these subsectors as a result of government spending cuts and the search for improved efficiencies and outcomes.
Recent private equity activity includes Ameos (The Caryle Group), HCA (KKR, Bain Capital), The Priory (Advent International) and Accelerated Rehabilitation Centers (OMERS Private Equity).
Rather than biotech start-ups and large prescription pharmaceutical companies, private equity funds are looking for niches in which they can put their money to work in this sector.
Funds tend to focus their capital on the more mature end of the pharmaceuticals industry (branded generics, niche specialty and over-the-counter drugs) all of which tend to be easier to price and with a reliable revenue stream.
Faced by patent cliffs and a slow-down in innovation, Big Pharma has both sought to outsource its non-core operations and to divest non-core assets. Recent deals illustrating this include GSK's sale of parts of its OTC portfolio to Prestige and Omega Pharma and Pfizer's listing of its animal health business).
While this presents primary deal flow, private equity faces stiff competition from strategic players in its attempts to acquire these assets.
As a result funds often show greater interest in small- to mid-market and under-the-radar opportunities, often involving companies with niche therapeutic, formulation or geographic strengths. They offer potential for expansion through internationalisation and roll-up strategies, and eventually the potential of profitable exits to Big Pharma.
The global healthcare equipment and supplies sector has traditionally seen large volumes of M&A activity across a range of company size, from venture businesses through to large-scale activity driven by strategic players.
The market will continue to be attractive to private equity as it seeks companies with limited pricing pressures, innovative market positions and the possibility of international growth.
In recent years one interesting area of investment for private equity has been, and will remain, the diagnostics market, in particular the early detection of medical conditions. Recent M&A activity around this theme includes Thermo Fisher's acquisition of Phadia from Cinven and Danaher's acquisition of Beckman Coulter.
Telecare, telemedicine and telehealth are also maturing segments of the technology space which will attract augmented private equity investment; this reflects the favourable demographics and people’s desire to remain in their homes for treatment as far as possible.
Skillcapital’s own recent work in this sector includes the placing of Board-level management into Handicare (Nordic Capital), Creganna (Permira) and BSN Medical (EQT Partners).
The outsourcing of non-core activity is a key driver in the healthcare market that runs across the Provider, Pharmaceuticals and Medical Devices subsectors.
Hospitals and health systems are seeking partners to provide services ranging from IT and BPO offerings through to the delivery of front-line clinical care.
International pharmaceuticals companies are looking at ways to minimise their exposure to the fixed costs and operating leverage of the blockbuster drug model in the face of an eroding top line. This has led to a rapid expansion of providers in markets including CRO, CMO and distribution for example.
Private equity often acts as a market consolidator seeking to exploit economies of scale and to cross-sell complementary services. Recent private equity deals include Aenova (BC Partners), PPD (Hellman & Friedman and The Carlyle Group) and Medpace (CCMP Capital).
Private equity has also been keen to invest capital in the provision of outsourced services into the medical devices subsector including Sterigenics International (GTCR) and MarketLab (Water Street Healthcare Partners).
Finally, the laboratories and diagnostics services provider markets have also seen increased consolidation frequently driven by private equity funds with deals including Unilabs, Euromedic, Labco and Alliance Medical.
Private equity buyers are taking an increasing interest in the education sector and searching for assets that provide direct teaching as well as outsourced services into the sector.
Secular growth trends in education - driven by a rising demand from emerging markets as well as an increasing need for government to seek private investment - have caused a flurry of recent activity in the US, Latin America, Europe and Asia.
The US remains the most developed private education market. Numerous private-equity backed and listed companies deliver services, tuition and content, and are increasingly seeking to internationalise their businesses.
From a global perspective, financial sponsor activity has spanned the market ranging from K-12 schools and higher education providers through to content publishers (with a natural leaning towards digitalisation) and vocational training.
Skillcapital’s recent involvement in the sector has included working on the $316m acquisition of the College of Law, with Montagu Private Equity, and Providence Private Equity’s investment in the Istituto Marangoni.