Healthcare insights

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The number of private equity-backed buyouts in the European healthcare space has risen strongly in the last decade. In 2019, 107 healthcare businesses were acquired by financial sponsors, according to Unquote Data; this represents a new high-point for the industry and is more than three-times the volume of deals recorded a decade earlier. What’s more, in the last three years, deals worth over €65bn were recorded, more than the previous eight years combined.

Clearly one of the drivers of growth, as Ramesh Jassal points out, is the sheer volume of capital available to be deployed by financial sponsors following several years of exceptional fundraising, and this is bolstered by a plentiful supply of debt from high street banks and credit funds. “If you combine this liquidity with a scarcity of good targets that have solid management teams, multiples will inevitably be driven upwards.” Of course, this is not unique to the healthcare space and other industry segments have benefitted from the deal-friendly conditions.

However, there are a number of important underlying trends which are driving the market – especially on the domestic front. “From the perspective of dealflow in the UK, much of the M&A activity we are seeing is in the health and social care space” says Jassal. “The NHS is under a lot of pressure to make cuts and to focus the funding they have on more acute healthcare areas such as surgical, A&E and oncology. As a result, activities focused on chronic and non-critical conditions that can be managed in the community are being pushed that way under the mantra of access, affordability and quality of outcomes.”

Examples of this are in areas such as IVF and cataract procedures, dental care and cosmetic surgeries and in these situations, the buyer rationale is shifting more to a consumer model: “In many areas, patients are becoming more like consumers: they want to be better informed and more in control of the treatments they opt for”, says Jassal. “Healthcare providers are also increasingly digitised and app-based and this is also attracting PE money and robust valuations”, he continues.

A key thing to bear in mind when considering the health and social care space is that austerity is highly unlikely to go much further. This means that the tariffs and funding from the state will surely rise in the medium-term, so it is very important for businesses to be embedded in the system and providing services to hospitals and care authorities. As time goes on, new independents trying to get into the system are likely to face higher barriers to entry and difficulties in gaining scale.

Indeed, the search for scale in many of these social care and consumer care subsectors, as well as in areas such as childcare, is a key strategy: financial and strategic buyers are looking for opportunities to consolidate highly fragmented markets. For example, as Jassal points out, there are over 20,000 nurseries in the UK and so buy-and-build strategies will be very much in evidence and backers seen to consolidate. There are also strong parallels with the dental and pet-care subsectors. Businesses here are trading at high single digit and low double-digit multiples.

From the perspective of dealflow in the UK, much of the M&A activity we are seeing is in the health and social care space.

In other segments of the healthcare market such as medical equipment and supplies and pharma/biotech, businesses are already well consolidated in the UK, and therefore dealflow here is more globally or regionally driven, with buyers seeking ‘access to payers’. However, in comparison markets in key Continental regions such as Germany is very fragmented and dominated by many smaller and medium-sized family-owned businesses. A number of GPs have active on the Continent following buy-and-build strategies in the healthcare and equipment space (Nordic Capital, Waterland, EQT,etc). Overall, against the backdrop of aging populations across Europe, the trend towards shifting non-critical care away from the public sector and the increased consumerism in the healthcare space, the prospects for continuing high levels of dealflow are strong.

A key thing to bear in mind when considering the health and social care space is that austerity is highly unlikely to go much further. This means that the tariffs and funding from the state will surely rise in the medium-term, so it is very important for businesses to be embedded in the system and providing services to hospitals and care authorities. As time goes on, new independents trying to get into the system are likely to face higher barriers to entry and difficulties in gaining scale.

NameSubsectorBacker
LGCBiotechnologyCinven, Astorg
Care Management GroupHealth Care Providers AMP Capital
DentixHealth Care Providers KKR
Direct Healthcare GroupMedical EquipmentArchimed
Dental Care GroupHealth Care Providers G Square Capital
Pebbles CareHealth Care Providers Ardenton Capital
Bluecrest Health ScreeningHealth Care Providers Vespa Capital
Sandcastle CareHealth Care Providers Waterland
Sk:n GroupHealth Care Providers TriSpan LLP

Indeed, the search for scale in many of these social care and consumer care subsectors, as well as in areas such as childcare, is a key strategy: financial and strategic buyers are looking for opportunities to consolidate highly fragmented markets. For example, as Jassal points out, there are over 20,000 nurseries in the UK and so buy-and-build strategies will be very much in evidence and backers seen to consolidate. There are also strong parallels with the dental and pet-care subsectors. Businesses here are trading at high single digit and low double-digit multiples.

In other segments of the healthcare market such as medical equipment and supplies and pharma/biotech, businesses are already well consolidated in the UK, and therefore dealflow here is more globally or regionally driven, with buyers seeking ‘access to payers’. However, in comparison markets in key Continental regions such as Germany is very fragmented and dominated by many smaller and medium-sized family-owned businesses. A number of GPs have active on the Continent following buy-and-build strategies in the healthcare and equipment space (Nordic Capital, Waterland, EQT,etc). Overall, against the backdrop of aging populations across Europe, the trend towards shifting non-critical care away from the public sector and the increased consumerism in the healthcare space, the prospects for continuing high levels of dealflow are strong.

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