global healthcare private equity and corporate m&a report 2020

The largest healthcare PE deal in Asia-Pacific in 2016 was the investment in GenesisCare, an Australia-based provider of radiation oncology treatment and cardiovascular care, by a group of Chinese and Australian investors. In the largest long-term care deal in 2017, Nordic Capital Svenska acquired German nursing home operator Alloheim Senioren-Residenzen for $1.3 billion. GlobalHealth is driven by its passion to deliver the best healthcare coverage in the industry. At the same time, the industry is being disrupted by the entry of new nonhealthcare players, including technology giants such as Apple, Amazon, Samsung and Tencent. While many HCIT-focused investors found 2017 somewhat frustrating because of tough competition and high valuations, we expect funds to continue to pursue deals aggressively in this highly attractive area. In addition to the Advanced Dermatology deal, GTCR invested in Riverchase Dermatology, and Varsity Healthcare Partners sold its majority stake in Forefront Dermatology to OMERS Private Equity. Looking ahead, corporate acquirers will likely be the largest barrier for PE funds looking to complete deals in the payer sector as they continue to aggressively seek out assets that enhance their current holdings. But that is changing as participants recognize the enormous potential of techniques and tools such as advanced analytics, machine learning, smart devices and autonomous robotics. Johnson & Johnson, for example, took several steps in 2017 to focus its leadership in certain areas. Chinese investors also looked beyond borders. Funds that want to pursue sizable targets but that don’t want any one asset to loom too largely in their portfolio will team up with other investors. Brexit has already exacerbated the staffing crisis in the National Health Service by making it harder to recruit foreign doctors and nurses, thus fueling demand for staffing agencies and employee management software. We found that multiple expansion occurred in more than three-quarters of these deals. At the same time, the industry is shifting its focus away from widely used blockbuster drugs toward specialized treatments as companies look for untapped niche markets in which they can command premium prices. This report was prepared by Bain’s Healthcare Private Equity practice and a team led by Jennifer Ferrigan, a manager, and Erin Ney, a senior consultant in Bain’s Healthcare practice. Governments, which pay for most healthcare in Europe, face ongoing taxpayer pressure to provide services more efficiently. For example, as previously discussed, Veritas bought healthcare IT firm Truven Health Analytics in 2012 and sold it to IBM in 2016 for a substantial return on its initial equity investment. In China, the burgeoning consumer class is driving demand for healthcare, including medtech, and the central government has prioritized the medtech sector in its 13th Five-Year Plan. IBM’s Watson Health division, for example, continued to build its HCIT portfolio in 2016 with the $2.6 billion purchase of healthcare data company Truven Health Analytics from Veritas. When private valuations are high, investors tend to pick the sponsor-to-sponsor option over the IPO. But the long-term trends favoring healthcare PE investments remain vibrant. The spin-off allows Biogen to focus on expanding its category leadership in neurology into Alzheimer’s, while Bioverativ can have a single-minded focus on hemophilia. For some healthcare-heavy assets, relatively attractive multiples combined with the potential for EBITDA growth could exceed the uncertainties surrounding policy and reimbursement. Disclosed deal value in medtech more than doubled to $6.5 billion in 2017 from $2.8 billion in 2016. PAI originally bought Cerba from another PE owner, IK Investment Partners, for $700 million in 2010. Would two pending megamergers between US health insurers be blocked by the courts? Even as investors looked to healthcare as a safe port, they found the industry faced headwinds of its own. Activity heated up in emergent PPM subsegments, including dermatology, women’s health and gastroenterology. If debt market conditions tighten and if public and private multiples remain mismatched, we could see a resumption of PIPEs as an alternative to P2P buyouts. To better understand the effects of potential regulatory changes, funds can run a robust commercial due diligence process that allows them to quantify the impact of different scenarios. In addition to being rivals for deals, however, corporations can create opportunities for PE investors as both sellers and buyers. Examples include Advisory Board, whose healthcare consulting business was bought by the Optum unit of UnitedHealthcare, one of the largest managed healthcare systems in the US; Chiltern, a CRO bought by LabCorp; and eviCore, a medical benefits management company bought by pharmacy benefit management company Express Scripts. Since PBMs tend to sell directly to employers—as well as to payers and third-party administrators (TPAs)—they are less vulnerable to the customer concentration concerns that hang over other benefit managers. Powerful secular and demographic forces underpin this surge in healthcare PE investing. When Bain Capital-backed Epic Health Services merged with J.H. In a $1.4 billion deal, Cinven acquired BioClinica, a supplier of tech-based services for clinical trials, including medical imaging and phone apps for participants, from Water Street and JLL Partners. In addition, funds showed a willingness to acquire category-leading assets at the healthcare-heavy end of the spectrum, where revenues are directly tied to payer reimbursement decisions. Chinese fund Hillhouse Capital partnered with American fund Clayton, Dubilier & Rice (CD&R) in the $800 million acquisition of US-based Carestream Health’s digital dental business. Deal count rose to 61 from 52 in 2016. value, according to the annual Bain & Company’s Global Healthcare Private Equity and Corporate M&A ... Competition between financial sponsors and corporate acquirers continued to push valuations higher, and 2018 saw yet another peak in healthcare investment activity due, in large part, to the rise in multi-billion dollar “mega deals.” In one of 2017’s top 10 deals, Ares Management invested $1.5 billion in DuPage Medical Group, a leading physician group based in Illinois. Across these four sectors, funds continued to show interest in HCIT assets, and deal count rose to 32 from 23 in 2016. These firms, known collectively as CXOs, provide contract research, manufacturing, packaging and sales. This report was authored by partners with Bain’s Healthcare Private Equity practice: Kara Murphy, Nirad Jain, Franz-Robert Klingan, Vikram Kapur, Joshua Weisbrod, Justin Doshi, Sharon Fry, Jason Slocum, Kalyan Jonnalagadda, Jeff Haxer and Dale Stafford. The HCIT sector included the biggest healthcare buyout of the year, which also happened to be a technology-enabled services asset: H&F, Leonard Green and GIC paid $7.5 billion to acquire MultiPlan. In the other major European deal, Nordic Capital Svenska acquired German nursing home operator Alloheim Senioren-Residenzen for $1.3 billion. With standard commercial due diligence, funds conduct unbiased research on the target and the markets in which it competes. Funds continued to compete with corporate players for HCIT assets. By Kara Murphy, Nirad Jain, Joshua Weisbrod, Franz-Robert Klingan, Vikram Kapur, Justin Doshi and Jeff Haxer. Given the fragmentation in the CPO segment, especially in PCI’s categories, there is significant opportunity for companies to build share organically and through M&A. In an example of portfolio pruning, Biogen in early 2017 spun off its hemophilia business into a standalone, publicly traded firm called Bioverativ. While US healthcare companies should benefit from lower corporate tax rates, other legislative and regulatory changes may not be so salutary. The vast majority of practices in these subsegments remain independent, meaning there is considerable scope for further consolidation. Many international investors are investing in US-based medtech assets to drive growth in developing markets. These help us to remember the choices you made in the past, like the language you prefer. Funds also pursued creative deal structures, in several cases partnering with other investors, sometimes reaching across international borders. Whitney-backed PSA Healthcare in early 2017, J.H. Would the UK vote to exit the EU? Across Europe, fewer large-scale assets came to market during the year as investors grappled with the Brexit vote, exchange rate volatility, stubbornly slow economic growth and continued momentum for a sweeping overhaul of EU regulations for medical devices. Several macro trends spurred corporate M&A, and the pursuit of category leadership fueled many deals 3. As recession risk looms, fiv… After three consecutive record-setting years, total deal value declined somewhat in 2016, to $3.2 billion from $4.9 billion in 2015. They often don’t start out as experts. In China, investors tapped into growing demand for OTC drugs, vitamins and supplements. Abbott also sold its noncore optical business to Johnson & Johnson for $4.3 billion. We should start to see the next wave of consolidation in services and a growing separation between winners and losers. build or maintain leadership by increasing scale within a category, therapeutic area or call point; buy HCIT assets that can help them reduce costs; and. Across geographies, the biggest opportunities for medtech investors are likely to be those areas in which they can take a meaningful stake in a category leader or a platform asset that could be built into a category leader. Around the globe and across industries, the favorable trends that have propelled private equity for the past several years continued into 2016. In 2017, funds were active in acquiring medical testing labs, continuing a trend that has picked up speed over the past decade. Among the drugmakers themselves, funds were active across the spectrum, from OTC medications to generic and branded prescription drugs. BC Partners and Silver Lake acquired the asset in 2010 and sold it to Starr Investment Holdings and Partners Group in 2014, which sold it in 2016 to a consortium that included H&F, Leonard Green and GIC. While digital can bring huge benefits in terms of efficiency, funds need to be hypervigilant that the companies in which they invest have rigorous safeguards to protect confidential patient data. Bookmark content that interests you and it will be saved here for you to read or share later. Focus Matters: How Biopharma Can Reward Shareholders, While overall PE deal value fell in 2016, healthcare private equity surged to $36.4 billion in disclosed deal value as investors looked to the industry as a safe haven, In response to regulatory and reimbursement uncertainty, investors focused on category leaders and “healthcare-light” assets, such as healthcare IT and contract services, Consortium deals, in which investors band together to acquire large assets, made a comeback, Three of the top four deals were public-to-private transactions, Total deal value rose to $28.4 billion despite political and regulatory uncertainty, Nine of the top 10 healthcare deals globally involved US-based assets, Cross-border investment activity was strong—4 of the top 10 healthcare deals involved European buyers and US-based assets, HCIT, retail health and outsourced services assets were especially popular, Deal value and activity fell amid economic and political uncertainty, Some European funds looked abroad, especially to the US, for targets, Within Europe, investors saw positive trends, including rising demand for healthcare and the need to make delivery more efficient, Active segments included retail health, contract outsourcing and specialty generics, Activity was strong throughout the region, particularly in hospitals and clinics, which nearly tripled in deal count, While total deal value fell in 2016, the lower level was largely due to the absence of a mega-buyout such as that of WuXi PharmaTech in 2015, Many deals featured a mix of buyers—corporate, PE and sovereign wealth funds, The provider sector was the most active in healthcare, with 113 deals valued at $14.9 billion, Investors showed strong interest in firms that can help providers become more efficient, such as HCIT firms and physician services, Retail health assets were popular globally; hospital and clinic assets were in demand in Europe and Asia-Pacific but were less active in the US due to uncertainty around the ACA, Disclosed deal value reached a record $10.5 billion, driven by two megadeals: the H&F-led $7.5 billion acquisition of MultiPlan and Leonard Green’s $2.2 billion P2P buyout of ExamWorks, With regulatory and legislative uncertainty clouding the core payer area, investors focused on services business such as payment analytics, workers’ compensation services and pharmacy benefit managers, Following a strong 2015, deal value and activity were down slightly in 2016, Outsourced services were in demand as manufacturers sought to contain costs, Interest was high in makers of specialty generics, particularly in Europe, Investors bought into overseas companies selling OTC products in China, Investor interest remained strong; total disclosed deal value rose, even as deal count fell, Activity was driven by six buyouts valued at more than $100 million, PE investors faced stiff competition from corporate acquirers, Popular segments included niche product categories, durable medical equipment and contract sterilization, Deal value and activity were strong, driven by the $7.5 billion buyout of MultiPlan, Investors viewed many HCIT plays as less subject to legislative and regulatory risks than taking direct stakes in payers and providers, Valuations were high, prompting funds to take buy-and-build approaches and look for eventual exits to corporate buyers, Popular sectors included data and analytics and alternate site IT, Healthcare M&A was active across all sectors, despite a drop-off in overall announced deal value, Companies continued to make fill-in acquisitions in pursuit of category leadership, and they divested assets in order to prune portfolios, There was just one corporate deal in excess of $20 billion as megamergers stalled over antitrust concerns in the US, Corporate buyers offered strong competition to PE buyers, accounting for 83% of all healthcare deals done in the sweet spot range for larger PE funds between $500 million and $5 billion, The number of exits fell modestly in 2016, following a record-setting year in 2015, Sponsor-to-sponsor exits grew as investors took advantage of high multiples, While corporate exits declined as a share of the total, there were several notable deals, IPOs decreased for the second straight year. When valuations are high, funds can’t count on multiple expansion alone to generate returns. As the Chinese government takes measures to encourage the development of the country’s healthcare infrastructure as part of the Healthy China 2030 effort, Chinese investors are looking abroad to Australia, Europe and the US, seeking category-leading platforms that have the potential to expand in China as well as in their home markets. In sharp contrast to the overall decline in PE deal making, healthcare PE activity soared. Investors also showed interest in pharmacy benefit manager (PBM) assets. While the market for corporate exits wasn’t quite as buoyant as it has been in prior years, sellers that were able to find corporate buyers still managed to secure top dollar for their assets—sometimes after holding their assets for only a few years. This means including scenarios in deal models that anticipate the compression of multiples when it comes time to exit. Bain's annual report looks at recent trends and the outlook for healthcare investing. To grapple with high valuations, investors continued to focus on assets with strong positions. The hottest sectors were biopharma and medtech, which together comprised 64% of deal value and 60% of deal count, with transactions in both developed markets, such as Australia and South Korea, and emerging markets, such as China and India. Bain analyzed a subset of deals (in healthcare as well as in other industries) that took place after the global financial crisis.6 The analysis found that while most of the companies met their revenue growth targets, more than 60% missed their EBITDA margin projections (luckily, higher-than-projected exit multiples made up for the shortfall in many cases). Funds continued investing in the PPM segment in the US, which has grown rapidly as doctors prioritize clinical care over administration and recognize the cost savings they can reap from being part of a larger organization. Healthcare private equity had another banner year. Chinese investors also joined with international funds to acquire foreign medtech companies with the goal of expanding their footprints in China. Funds evaluating current and potential healthcare investments should consider these players’ ability to use scale and technological expertise to challenge entrenched healthcare competitors in areas as diverse as pharma distribution, retail clinics and insurance, while keeping in mind that this disruption will occur over the long term. Teva sold its women’s health business (including fertility treatment Ovaleap, oral contraceptives Zoely and Seasonique, and osteoporosis drug Actonel) to European fund CVC Capital Partners for $703 million. Click "accept all cookies” to continue browsing the site with its full range of features enabled. Part of the explanation for the falloff in corporate megadeals was the regulatory environment in the US. These healthcare channels offer consumers some of the qualities they have come to expect when they buy other products, including convenience, attentiveness, timeliness, value and price transparency. There was a profusion of other large deals as well, with eight valued at more than $100 million, compared with just two of that size in 2015. Given the tendency some funds have toward longer holding periods and the fact that funds have now sold many of their investments made prior to the financial crisis, we may have reached a plateau in healthcare PE exits and may even see a steady decline. Global corporate M&A activity in healthcare surged in 2017, fueled by relentless pressure on companies to contain costs and boost returns. As part of China’s 13th Five-Year Plan, which was approved in 2015, the government encouraged investment in the provider, medtech and HCIT sectors. We expect to see more consortium arrangements. While total corporate deal value in healthcare hasn’t quite equaled the peak of $432 billion reached in 2015, average annual activity over the past four years has been strong, nearly twice the level of the previous four years.

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