By Kara Murphy and Nirad Jain
If healthcare is in so much turmoil, why do private equity investors like it so much?
The total value of healthcare private equity deals announced in 2016 surged to $36.4 billion, the highest level since 2007, according to Bain & Company’s annual Global Healthcare Private Equity and Corporate M&A Report.
Investors have latched onto healthcare as a safe-haven investment—that is, one with a proven resilience to economic volatility. That characteristic of healthcare investing holds true even when the uncertainty affects the industry itself, as it has with the acrimonious debate over the future of the Affordable Care Act (ACA) in the US.
Healthcare has long been a winning investment for PE funds. It has ranked among the top three industries in terms of returns every year since 2011, according to data from Cambridge Associates.
Regardless of what happens with healthcare policy in the US and elsewhere, investors recognize that the growth of the industry worldwide will continue to be fueled by powerful and immutable long-term trends: an aging population, a rising incidence of chronic diseases, an expanding demand for quality services and an ongoing need for those services to be delivered more efficiently. Those forces spur innovation. Even in the face of economic and regulatory headwinds, pharmaceutical and medical technology companies have a long track record of bolstering their revenues through the discovery of new treatments that physicians and patients find valuable.
Impelled by this logic and helped by low interest rates and readily available capital, PE funds have plunged into healthcare with gusto, bidding up the prices for choice assets. Healthcare deal teams at traditional PE buyout funds now face heated competition as new categories of players enter the fray. They include generalist PE investors, sovereign wealth funds, pension funds and family offices. And corporate buyers have continued to be active across the healthcare industry, winning deals—and helping to drive up valuations.
Related: Global Private Equity Report 2017