Private equity firms have invested in healthcare for years, but the pace is quickening as they step up their presence in a highly fragmented industry, finds a new analysis from PricewaterhouseCooper. These firms are seizing on consolidation opportunities to build a better business model.
Private equity's acquisitions and investments in the health sector have become increasingly diversified and frequent; they include such things as new entrants in technology and convenient care delivery, clinical research organizations, and ophthalmology and dermatology practices.
PwC expects this trend to accelerate in 2019, giving traditional healthcare companies opportunities to sell all or parts of non-core assets and double down on their core competencies, or partner with private equity in acquisitions in which they would otherwise be competing against each other -- or unable to act on their own.
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A private equity sector bursting with cash and searching for deals means more of that money has flowed into the healthcare system over the past decade. In 2009, private equity firms completed more than 200 healthcare deals, and by 2016 this had tripled to more than 600 deals.
The healthcare industry saw a high level of deals in general in 2017 and 2018, involving both private equity and corporate buyers. As those deals are completed, many may be looking to sell non-core business units -- prime targets for private equity firms looking for a proven business model and solid cash flow.
Private equity's purchases of healthcare divestitures are expected to continue in 2019 as the sector looks to invest the cash it has raised, a reported $624 billion ready for investment across industries as of July 2018.
Private equity firms are approaching corporate entities more frequently, hoping to persuade them that some assets can be better managed by specialist private equity firms. Meanwhile, corporate buyers increasingly find themselves competing for deals with private equity firms that are more aggressive in the bid process, presenting an opportunity for corporate buyers to partner with such firms, spreading the risk of transaction.
Partnerships between private equity and healthcare buyers also are evolving beyond acquisitions, with some healthcare companies spinning off non-core assets and co-investing with private equity in the new company.
PwC expects to see more co-investing in 2019; it gives healthcare companies a chance to keep their portfolios diversified while mitigating some of the operational and financial risks that come with diversification.
WHAT ELSE YOU SHOULD KNOW
According to the analysis, healthcare companies should consider selling non-core business units to private equity firms that have money to invest, and may be more apt than a corporate buyer to purchase a single business unit. And as megadeals wrap up, newly consolidated entities should consider shedding non-core assets, with private equity as a potential buyer.
Companies across the industry should consider where they might partner with private equity firms when pursuing growth or expansion efforts, as the private equity sector may provide strategic advantages beyond key additional financing, the authors said.
The adoption of technology is paramount when it comes to helping the consumer, and it's been a central component to the consumerism movements in industries such as banking. Technology adoption paves the path for private equity firms and other investors to pump cash into the system, and there's a need for their capital.