Sector focus: healthcare
the healthcare sector saw multiple valuations pick up in Q1 2021 and hit a record high of 13.7x
Reinvigorated by the massive boost in financing and attention received with the spread of the pandemic, the healthcare sector saw multiple valuations pick up in Q1 2021 and hit a record high of 13.7x.
Furthermore, the healthcare market recorded a stable dealflow and a significant increase in deal value compared to previous quarters. According to Unquote Data, 23 buyouts were inked across the sector between January and March 2021, for an aggregate value of €11.2bn. By comparison, 28 buyouts were signed in Q4 2020, for a total enterprise value of €5bn and 26 in Q1 2020, worth €8.3bn.
Reflecting the rising interest in healthcare assets, the sector saw several large deals across Europe, including the €4.5bn acquisition of French medical business Cerba HealthCare, bought by EQT from Partners Group. Meanwhile, Charterhouse sold its majority stake in Cooper Consumer Health, a France-headquartered provider of generalist over-the-counter self-care pharmaceuticals, to CVC Capital Partners. The deal valued the business at €2.2bn, equating to a 14.1x entry multiple.
Healthcare has been one of the leading sectors over the last 12 months, recording a stable volume of deals and a significant increase in valuations
In the UK, Nordic Capital launched a take-over offer for Advanz Pharma, valuing the company at more than $2bn, while in the Netherlands Triton invested in Bergman Clinics, a portfolio company of NPM Capital.
“Healthcare has been one of the leading sectors over the last 12 months, recording a stable volume of deals and a significant increase in valuations,” says Ramesh Jassal, International Head of Healthcare at Clearwater International. “The only segment negatively affected early on, primarily due to social distancing measures, was consumer healthcare, which includes a wide range of activities, such as dentists, clinics, practices and cosmetic surgery. However, even the most impacted segments have been able to recover and adapt to the new environment, implementing an intensive use of technology to meet the needs of their clients, from virtual consultations to digital tools aiming to streamline processes and providing better data to healthcare professionals. In addition, numerous players across the healthcare sector have benefitted from public contracts with state-owned health services like the NHS in the UK.”
An additional factor that has contributed to keeping deal flow volume stable and buoyant, at least in the UK, has been the rush to get deals across the line before the increase in capital gains tax rates expected for March 2021, which ultimately did not come to pass.
Jassal says: “Deals that had been put on pause in 2020 due to the pandemic, were eventually back up and running within a couple of months once the market adapted to working in lockdown. A large volume of these deals in the UK were completed by Q1 2021 to avoid the hike in capital gains tax. Interestingly, the same number of deals that completed in nine months was equal to the number of deals done in a normal 12 month period, likely driven by the foreseen tax impact.”
Uncertainty spread by the pandemic has caused a flight to quality from private equity firms all over the world, increasing competition in a rarefied market
Considered a safe haven and an arsenal of promising assets by many private equity firms, healthcare has recorded a steady increase in average entry multiples, which have climbed to 12.6x in Q4 2020 and reached 13.7x in Q1 2021.
“Uncertainty spread by the pandemic has caused a flight to quality from private equity firms all over the world, increasing competition in a rarefied market with a limited number of outstanding assets,” says Jassal. “Private equity firms have become eager for businesses that were growing pre-Covid and during the pandemic were able to adapt and continue to outperform. Hence why multiples that were trading at high-single and low-double digit before the pandemic, moved to low-double and mid-double digit in Q1 2021, respectively, due to the scarcity of these assets. In the pharma outsourcing segment, the increase has been particularly significant, with assets that were trading at around 11-13x before Covid, reaching 15x plus after the pandemic.”
The pharma outsourcing space is mainly composed of global companies that were able to adapt quickly to the pandemic
Among the highest multiples seen by the market in Q1 was the sale of Prescient Healthcare, bought by Bridgepoint from Baird for a mid to high double-digit multiple while biometrics clinical research company Phastar was acquired by Charterhouse at a multiple of around 15x.
“The pharma outsourcing space is mainly composed of global companies that were able to adapt quickly to the pandemic, implementing remote working practices and virtual settings faster than any other segment,” says Jassal. “The growth in this sector has been continuous, ranging between 30-60% YoY, depending on the business. This has attracted a broad pool of investors, including both private equity firms with a long experience in healthcare and several newcomers that had not invested in healthcare before and have now dived into the sector.”
Another hot segment across the healthcare industry has been health and social care, which provides services to hospitals, nursing homes, foster caring and nurseries.
The anti-cyclical nature of healthcare and the underpinned government funding in some healthcare segments will continue to generate interest across the industry
“Following Covid lockdowns and disruptions, there will be a continued high demand for health and social care services like mental health support as well as an increasing pent-up demand for elective surgery which will need to be addressed immediately but will be with us over the next five to ten years to help clear the backlog.” says Jassal. “Companies that are able to provide additional capacity to the healthcare market will become very attractive to private equity investors, which are able to ride this rising trend and maximise growth.”
Looking ahead, the healthcare market is expected to build up momentum, with new opportunities arising across Europe, not only in the biotech space, which has been booming after Covid, but also in more traditional segments of the industry, where strong consolidation is foreseen.
“The anti-cyclical nature of healthcare and the underpinned government funding in some healthcare segments will continue to generate interest across the industry, with multiples holding up over the next 12 months,” says Jassal. “We expect to see intense activity, especially from private equity players, which are likely to increase their allocation towards the industry even further. Healthcare is currently one of the hottest sectors in the market and competition will remain high in the coming quarters.”