Global Healthcare Private Equity and Corporate M&A Report 2017


Private equity investors contended with a world of uncertainty. Would the long-running global recovery gain strength, falter or muddle along? Would the UK vote to exit the EU? Who would win the US presidential election? Amid all this volatility, investors latched onto healthcare as a safe haven—that is, an industry with proven resilience to economic turbulence. The growth of healthcare is powered by several immutable long-term trends: an aging global population, a rising incidence of chronic diseases, an expanding demand for quality services and an ongoing need to deliver those services more efficiently.

Impelled by this logic and helped by low interest rates and readily available capital, funds pushed the total disclosed deal value for healthcare private equity to $36.4 billion in 2016, the highest level since 2007. It was a banner year in spite of a welter of questions surrounding the industry—especially in the US, the world’s largest healthcare market. What would happen to the Affordable Care Act, and what would that mean for insurance reimbursement rates? Would two pending megamergers between US health insurers be blocked by the courts? Would pharmaceutical prices come under greater pressure? In this kind of environment, could the sky-high valuations for deal targets that had prevailed during the past few years be sustained? Would multiples continue to expand?


Global Private Equity Report 2017Global Healthcare Corporate M&A Report 2016


Private EquityHealthcare

Given these concerns, investors selected their targets with care. They focused on those areas that were less exposed to regulatory uncertainty, including outsourced services, healthcare IT and retail health providers. PE funds took advantage of a disparity between public and private valuations for some healthcare assets, prompting a surge in public-to-private transactions. The flip side of this trend was a falloff in the number of IPOs amid a modest decline in overall exit activity.

Around the globe and across industries, the favorable trends that have propelled private equity for the past several years continued into 2016. PE funds enjoyed strong gains on both current and exited investments, handily outpacing those achieved in the public markets. With readily available, inexpensive debt and abundant dry powder, PE funds were again eager to make deals.

It was, however, a challenge to deploy that money. Global PE deal activity slowed in 2016, stymied by concerns about the viability of the global recovery, slumping oil prices, the bursting of the Chinese stock market bubble, the US presidential election and the UK Brexit vote. Given this uncertain macroeconomic environment, PE firms were challenged by persistently high prices to pencil out the target returns they and their limited partners expected from their investments. Total global deal value fell 14%, and the deal count dropped by 18%.

In sharp contrast to the overall decline in PE deal making, healthcare PE activity soared. Even excluding several large deals whose values were not revealed, total disclosed global healthcare PE deal value reached $36.4 billion, its highest level since 2007. That marked a nearly 60% increase from the total of $23.1 billion in 2015. Two megadeals—namely, the $7.5 billion investment in MultiPlan and the $6.1 billion acquisition of TeamHealth—accounted for more than a third of the total deal value (see Figure 2). The deal count also rose in 2016, to 206 from 199 the year before.

Powerful secular and demographic forces underpin this surge in healthcare PE investing. The global population is getting older, and people are demanding better and often more expensive treatments. The International Monetary Fund forecasts that global annual healthcare spending, about $8 trillion now, will rise 6% per year, reaching $10 trillion by 2020. In the US, the world’s largest market, healthcare spending already accounts for 18% of GDP, and it will exceed $4 trillion by 2020, according to government projections.

Corporate M&A

Following two years of frenetic deal making, corporate acquirers paused in 2016 to integrate their purchases. After setting records in 2014 and 2015, healthcare M&A dropped sharply in 2016. Total announced corporate deal value fell to $261 billion, down from $523 billion in 2015 (see Figure 8). While activity declined for deals of all sizes, the plunge was most noteworthy in megamergers. There was just one deal in excess of $20 billion in 2016, compared with five in 2015.

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