2021 healthcare private equity deals soar

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Private equity investors putting $151 billion to work in healthcare globally in 2021, more than twice the previous year’s high, according to a new report from Bain & Co.

  • This unprecedented year also saw the number of transactions soar, which increased by 35% from 2020 to 515.

Why is this important: We are entering “a period of discontinuity” as we enter 2022, but Bain & Co. partner Kara Murphy Said Sarah expect private equity to be more resilient overall and healthcare in private equity to continue to outperform.

  • “2021 has set the bar high,” says Murphy. “The open question: will we surpass it, or can we match 2021?”
  • From 2010 to 2021, the median IRR of private equity deals in healthcare exceeded that of all other industries by about 6 percentage points, according to the report.

State of play: The start of the year was arguably slow in closing deals after the 2021 investment surge, and now we are seeing a reset from a valuation perspective.

  • The world is watching COVID’s transition from pandemic to endemic, inflation issues and, more recently, geopolitical risks and potential ripple effects triggered by Russia’s invasion of Ukraine, said Bath.
  • “With this general context, we have kept optimism for 2022,” Murphy said.
  • Even if 2022 doesn’t add up, Murphy adds, if you look at deal activity in more standard terms of reference (with 2021 as the outlier), there’s still excitement across subsectors and geographies.

Between the lines: The health care investment windfall is not a unique phenomenon. The year 2021 saw the revival of the mega-deal, while the share of growth equity supporting innovation gained popularity.

  • Buoyed by $34 billion and $17 billion in leveraged buyouts for Medline and Athenahealth, the capital deployed for the top 10 deals of 2021 exceeded all other previous years, according to the report.
  • 30 deals were valued at over $1 billion, a new record.

Yes and: Capital deployed by healthcare growth equity investors set records in both number of deals and invested capital last year.

  • Investments in growth stocks grew at a compound rate of 39% over five years, with reported invested capital reaching $114 billion in 2021, according to the report.
  • Murphy expects this phenomenon to continue as growth equity investors – including crossover funds like Tiger Global, growth equity arms of large buyout firms like Blackstone or traditional growth specialists like General Atlantic — recognize both the outperformance of returns from healthcare investments and the level of opportunity for innovation that exists, Murphy says.
  • Whether enabling value-based care, employer-sponsored digital health tools, improving care operations, or advancing drug development through technology, the opportunities for transformation are vast.

💭 Sarah’s thought bubble: We’ve seen an explosion of life science-focused vehicles, healthcare-only funds and, of course, mega-tech funds. Is it time for the emergence of a fund focused on health technologies?

  • “If sectoral specialization becomes increasingly important [and] if LPs want access to the most attractive sectors (healthcare and technology),” says Murphy, “there is reason to believe this would be a very attractive fund to invest in.

What we are looking at: A year ago, private equity firms arguably couldn’t compete with public market valuations and SPACs, but the roles have changed.

  • The public-private valuation gap, notwithstanding the long-term opportunity for healthcare innovation, should still tip the balance in favor of private equity ownership, Bain said.
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