Private equity in healthcare: Deals decreased in 2022, but market was still active
The healthcare industry saw big changes in 2022, with the first half of the year marked by big industry deals followed by a major slowdown and economic shift.
The tale of two halves of the year didn’t stop 2022 from being the second-best year for private equity in healthcare, according to Bain & Company's 12th annual Global Healthcare Private Equity and M&A report, which found total deal value reached $90 billion last year. While that’s well below the $151 billion in 2021, it’s still the second-highest year for deals and $10 billion more than the next highest year for deal value.
The first half of 2022 was booming for healthcare deals, a continuation of the record-breaking 2021 deal value. The changes in 2022 were brought about suddenly when Russia invaded Ukraine and economic downturn began. In the United States, inflation rates skyrocketed, overall costs rose and interest rates all put a damper on deal making.
"Healthcare private equity has earned a recession-proof reputation, typically outperforming overall private equity activity during economic downturns," Kara Murphy, co-lead of Healthcare Private Equity at Bain & Company, said in a statement. "While the space is resilient, investors will face continued challenges ahead as interest rates and labor costs continue to climb, and credit continues to be tight. As our clients invest to deliver better healthcare, they will need to differentially focus on value creation planning in diligence and post-close."
While deals slowed down dramatically, they didn’t stop in 2022. Instead, private equity firms put their focus on certain subsectors and categories, the report found. For example, life sciences became more appealing to investors, as did carve-outs and public-to-private deals. Plus, the maturing healthcare industry in Asia-Pacific attracted a number of $1 billion-plus deals.
Overall, there were roughly 350 healthcare deals in 2022, down 30% from the 515 recorded in 2021, but in line with deal volume in 2020. Still, the slow down from the beginning of the year to the end of 2022 was stark.
“Global HCPE deal volume fell in each successive quarter of 2022 and reached its lowest quarterly level since the fourth quarter of 2017” the report stated. “Funds that had been slammed with deal flow in 2021 felt a marked slowdown from prior quarters.”
One of the biggest deals in 2022 included Walgreens’ $8.9 billion acquisition of VillageMD, while 7 of the top 10 deals were in biopharma, life science tools and related services. Those deals underscored the private equity firms were mitigating their risks and the impact of the geopolitical uncertainty through care delivery and clinical breakthroughs.
2023 predictions
Looking forward, there could be more economic slowdown in 2023, according to the report. High interest rates are impacting deals across industries, though healthcare private equity is more resilient than other private equity activity, previous recessions have revealed. The industry has a track record of quick recoveries and returns in economic downturns. High inflation is likely to remain however and continue to impact healthcare businesses.
The economic headwinds will require private equity investors to ensure their strategies are tuned into a potential recession.
"Change is coming as 2023 unfolds," Nirad Jain, co-lead of Healthcare Private Equity at Bain & Company, said in a statement. "Investors who have previously weathered down cycles have specialized playbooks for these times, to which they will adapt their usual approach. This includes playing to long-term trends and getting creative to close deals amid capital and inflationary restraints."
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."