This article is part of Bain's 2021 Global Healthcare Private Equity and M&A Report.

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• Regional overview

  North America: For the first time, North America was passed by the Asia-Pacific region as the leader for healthcare private equity in deal count, though it retained the leadership position in disclosed value. Volume dropped slightly to 142 deals, down from 159 in 2019. Disclosed deal values also dropped to $34.7 billion, compared with $46.7 billion in 2019.

  Average deal value (for deals that disclosed value) dropped from $1.0 billion in 2019 to $0.5 billion in 2020. This difference largely stemmed from the absence of megadeals compared with prior years, as the Covid-19 pandemic caused parties to defer some large transactions, and special purpose acquisition companies gained favor as an exit alternative for some large deals. Volatility in the marketplace also likely encouraged pursuit of smaller, incremental deals, especially if they could be added on to existing portfolio assets.

  Europe: European deal volume dropped slightly to 75 deals from a high of 80 in 2019. Disclosed value fell by nearly 30% to $14.0 billion after reaching $19.7 billion in 2019. Part of this drop stems from the lack of megadeals that were present in 2019, notably the $10.1 billion Nestlé Skin Health acquisition, as well as some known high-value deals going undisclosed. Overall, activity and values for 2020 demonstrated clear signs of a robust underlying acquisition market despite Covid-19’s effects on buyout processes.

  Asia-Pacific: Deal volume increased significantly to 156, up from 68 in 2019 and 88 in 2018. However, the rise in disclosed value was less pronounced, $16.9 billion up from $11.5 billion the year prior. The 2020 gains mirrored the region’s long-term growth and derived largely from greater domestic investing, especially in China and India biopharmaceuticals and services as smaller, venture deals of the past are beginning to evolve into growth equity opportunities for investors. Additionally, several structural reasons (such as government policy shifts supporting the growth of local healthcare champions) and strategic reasons (such as lack of supply in domestic assets) led sponsors to continue with smaller, consortium investments in early-stage targets. There were only two deals valued over $1 billion, down slightly from four in 2019.

  Rest of the world: As in past years, healthcare private equity activity was scant in the rest of the world. Activity reached just seven deals, up from six in 2019, primarily in the Middle East and Africa.

Healthcare buyout activity in Europe maintained historically high levels through 2020, despite fierce headwinds related to the Covid-19 pandemic. Deal count merely dipped to 75 compared with 80 in 2019, a clear sign of the market’s resilient underlying characteristics (see Figure 1). Total disclosed value declined to $14.0 billion from $19.7 billion in 2019 due to various reasons.

Figure 1

Several known, large deals did not officially disclose values, and no deal materialized that approached the $10.1 billion Nestlé Skin Health acquisition in 2019. In addition, Covid uncertainty widened bid-ask spreads and caused investors to defer some buyout processes or to investigate opportunities for selling without launching a full process. Given these factors, combined with the continued high deal volume, we remain bullish on healthcare investment opportunities in Europe.

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Three investment trends stood out in 2020:

• efforts to deliver health and social care in more effective and efficient ways through private healthcare providers and the ongoing shift to non-acute settings, which were both accelerated by the pandemic;
• development of specialty pharma platforms, and significant growth in the supporting services space, especially medical and commercial firms and contract development and manufacturing organizations (CDMOs); and
• national healthcare systems’ focus on enhancing their IT solutions in the wake of Covid tracing and interoperability requirements, plus emerging opportunities to create multicountry platforms, which raised expectations for a larger, longer-lasting wave of healthcare IT consolidation.

Healthcare providers: New opportunities in home care and retail health

The healthcare provider sector accounted for the greatest share of deal value in Europe, rising to $9.4 billion from $2.4 billion the previous year, despite several processes being delayed by the pandemic and subsequent lockdowns. Volume dropped slightly from 28 to 31 the previous year.

Investors are still attracted by the resilience of the provider space. They increasingly recognize the opportunity for private providers to deliver effective health and social services and grow through innovation, capital investments, and optimization of their organizations. This applies to the home care space, which also benefits from the ongoing shift away from acute settings, where Ardian made a majority stake investment in Santé Cie, a French home medical assistance provider. It also applies to traditional hospital networks, as illustrated by KKR’s $4 billion acquisition of French private healthcare operator Elsan.

Moreover, if assets can be combined, there are advantages to large-scale, cross-border consolidation, namely the mitigation of idiosyncratic regulatory risk inherent in exposure to one single system. Orpea, for example, has used acquisitions over the past several years to grow into a multinational firm with facilities in 22 countries. However, the fundamental constraints of language and reimbursement system differences continue to limit both synergies to variable costs and to improved financing.

Turning to retail health, the sector faced significant challenges as the lockdown caused lower transaction volumes and broad postponement of deal processes. Some headwinds could continue in 2021 as any economic challenges could affect patient volumes for self-funded and discretionary treatments. Yet investors remain keen to find opportunities to explore different themes that could raise volumes in the coming years.

Provider uncertainty could accelerate consolidation processes, especially in the fragmented southern and eastern European markets. We also expect greater interest in segments characterized by scarce capital equipment, notably ophthalmology and radiology. Investors have been more skeptical about traditional segments such as dental, primary care, and behavioral health, especially in the northern and western parts of Europe, where in-country consolidation is already advanced and cross-border synergies are limited, while regulatory bodies in the core French and German geographies maintain high levels of physician independence.

Biopharma: Specialty pharma and services dominate the scene

On the heels of several strong years, biopharma activity in Europe again ticked higher with 35 deals, up from 24 in 2019. Because a number of large deals did not disclose value—39 of the 150 biopharma deals did not disclose value—the $4.1 billion total likely underrepresents the true value of private equity activity in the sector during 2020. Investors showed keen interest in specialty pharma and pharma services.

In specialty pharma, investors sought targets demonstrating an ability to establish defensible niches that may be too small for larger companies, especially targets with some differentiated intellectual property or capability that provides a competitive moat. For instance, Neuraxpharm, a CNS pharmaceutical company, has developed differentiated dosage forms and strengths that have been critical to its success with patients and prescribing physicians. Other assets drawing attention included category leaders that specialize in a specific therapeutic area allowing the company to gain scale, geographical leaders, or companies that feature chronic illness portfolios, such as Covis Pharma, a therapeutic developer for life-threatening conditions that was acquired by Apollo.

This past year also proved a turning point for pharma services, as activity that had long been anticipated began to materialize. Scalable assets providing meaningful returns across the spectrum of services, especially medical affairs, commercial services around launch, and R&D beyond contract research organizations attracted investors trying to build broad services platforms from these relatively fragmented markets. Huntsworth Health (acquired by CD&R for $0.7 billion), Envision Pharma Group (acquired by GHO Capital Partners and Mubadala), and Fishawack (acquired by Bridgepoint) represent just some of the noteworthy pharma services deals completed in 2020.

CDMOs generated investor interest in two categories. The first category consists of CDMOs that offer scalable and efficient services across the pharma value chain. For example, Ardena, a multiservice CDMO with services spanning the pharma development life cycle, was acquired by GHO Capital Partners. The second category includes CDMOs with an established niche that certain pharma segments depend on. Here, 3i Group acquired Cellon to add to its newly established single-use bioprocessing platform offering products and services.

Businesses in the cell and gene therapy space have also begun to attract interest. This is especially true when related to adjacent investments, such as ultra-cold chain, transfection reagents, and other life science tools. These have benefited from underlying cell and gene therapy tailwinds without the associated risks of therapy development. An example is Polyplus, a producer of reagents used in gene therapy development, getting coinvestments from Archimed and Warburg Pincus.

Medtech: Smaller firms struggle to compete with larger, consolidated companies

Medtech remained the smallest of the major healthcare sectors for investors in Europe, with deal volume dropping to 10 for the year, down from 24 in 2019. The pandemic had a dampening effect, of course. In addition, small and medium-size firms face stiff competition from larger companies and continue to bear the costs of implementing new Medical Device Regulation, which established a higher data standard on devices approved for use, despite Covid-related delays to regulation implementation (now scheduled for May 2021).

Niche assets in attractive segments and geographies that show potential for category leadership will remain the most attractive targets. However, competition from corporates to acquire these assets, especially smaller assets generating real innovation, is intense.

Healthcare IT: Investors seek national champions that can expand into white spaces

European healthcare IT deal volume was consistent with 2019, with five completed deals in 2020. Investors sought national champions of specific solutions that can grow by addressing white spaces in the market, while gaining share from the smaller companies and benefiting from the push by public healthcare systems toward digitization and interconnectivity among facilities.

Firms in this sector took another step in the development of European healthcare IT platforms providing electronic medical record (EMR) solutions and additional modules for public and private providers. Dedalus, a healthcare software developer owned by Ardian, focuses on such international expansion and further developed their cross-border EMR platform through the acquisition of DXC, an EMR solution with significant presence in the UK, Spain, and a number of other countries. However, progress and investor success still hinge on a target’s ability to tailor solutions that address country-specific needs and regulations, which historically have limited the opportunities for expansion across national borders.

Software companies with a large share in niche markets also attracted interest. These smaller segments often have fewer software solutions, offering strong expansion opportunities for private equity investors. For instance, Carlyle invested in MAK-SYSTEM, a global blood management software system solution provider for blood services, plasma collectors, and hospital markets.

Finally, it is worth noting greater interest in telemedicine, fed by the growth of omnichannel healthcare offerings, and in software-enabled services for pharma and medtech companies. This interest includes a meaningful bet that, post-Covid, many norms in the European healthcare sector will give way to a rapid deregulation, opening opportunities for expansion.

Investors that postponed deals will deploy ample dry powder

The availability of strong healthcare assets in Europe, particularly in the provider and biopharma sectors, should pick up the pace of investment in 2021. Postponed processes will likely begin again after widespread vaccination and the much-anticipated end of lockdowns. In the meantime, deals will likely continue outside of standard processes, as private equity funds have ample dry powder to deploy, as well as new capital from higher allocations to healthcare from both general partners and limited partners. Investors with healthcare experience and those new to the industry are both expected to spur strong activity in the region.

Although regional and local dynamics make some European assets difficult to understand, many can offer operational upside and protection over the typical life of an investment. Local complexities, coupled with the intense competition for good assets, require careful due diligence, specific angles to value creation, and active portfolio management, but can result in above average returns.

We expect to see the following trends leave their mark in 2021:

• further focus on private providers, especially in post-acute care and some retail health verticals;
• activity in the pharma outsourcing space, including consolidation of medical and commercial services, and investment in niche CDMOs with strong technology and capabilities;
• healthcare IT activity in niche segments and across borders;
• a focus on technology that enables gene and cell therapy, including for adjuvants, carriers, and vectors for RNA-based products and manufacturing facilities for mRNA; and
• potential activity in nonpremium medical device assets that benefit from increasing commoditization of categories.

More from the report

• Welcome Letter: Fertile Conditions for Healthcare Private Equity Investment

• Healthcare Private Equity Market 2020: The Year in Review

• The Covid-19 Paradox: Widespread Repercussions for Demand, but New Healthcare Investment Opportunities as Well

• Healthcare Private Equity in North America: Bring On the Gem Assets

• Healthcare Private Equity in Europe: Steady Dealmaking despite Many Deferrals

• Healthcare Private Equity in Asia-Pacific: Riding a Wave of Domestic Innovation

• Healthcare Providers: New Roll-Up Candidates and a New Look for Risk-Bearing Providers

• Healthcare Payers: A Bid to Reduce Costs for Patients and Employers

• Biopharma: Commercialization Support Services Are Thriving

• Medtech: Four Themes Fueled Deals despite the Pandemic

• Healthcare IT: Technologies Help Improve Patient Experiences at Lower Costs

• Healthcare M&A: A Pandemic-Induced Slowdown in Every Sector

• Healthcare Exit Activity: Robust Capital Markets Spur a Surge of IPOs

• Healthcare Private Equity Outlook: 2021 and Beyond

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