We have limited Spanish content available. View Spanish content.


Europe: Healthcare Deal Values Rise as Private Equity Looks for Scale
Executive Summary
  • European deal activity maintained historically high levels as deal count grew to 80 in 2019, slightly higher than the 73 deals in 2018. European investors were active in both Europe and North America.
  • Total disclosed deal value reached a new high at $19.7 billion, compared with the previous high in 2018 of $17.8 billion. Europe was more on the map with respect to prominent deals, including the $10.1 billion carve-out of Nestlé Skin Health and the acquisition of LGC.  
  • The provider sector including retail health continued to be the most active sector, accounting for roughly 40% of deal activity. Biopharma again drove a majority of the total disclosed deal value.
  • Regulatory uncertainty, ranging from the broad impending medical device and in-vitro diagnostics reforms, to more national-level reforms, did not deter investor interest. Brexit also seems to have had no measurable impact.

This article is part of Bain’s 2020 Global Healthcare Private Equity and Corporate M&A Report. Explore the contents of the report here or download the PDF to read the full report.

  • Regional Overview

Healthcare buyout activity in Europe proved resilient through 2019, despite economic uncertainty in some countries and continued regulatory changes. Deal count increased slightly compared with 2018, stabilizing the long-term trajectory. Total disclosed deal value reached a record high of $19.7 billion, an 11% increase from the previous peak of $17.8 billion in 2018 (see Figure 4).

Figure 4

Deal activity increased in North America and Europe, offsetting a decline in Asia-Pacific

Deal activity increased in North America and Europe, offsetting a decline in Asia-Pacific

Megadeals stood out, consistent with the rise in sponsor partnering for very large deals – for example, the $10.1 billion acquisition of Nestlé Skin Health, now Galderma, by a consortium of EQT, GIC, Public Sector Pension Investment Board (PSP), ADIA and other institutional investors.

Provider and related services: Stable demand but limited scalability across borders

The provider sector accounted for the greatest share of deal volume at roughly 40% of the region’s deals, despite disclosed deal value declining from the previous year. Retail health remained a favorite subsector, due to underlying stable demand and to revenues mostly paid out of pocket and therefore not subject to reimbursement risk. Retail health also had a record of outsized returns in a few landmark deals.

These stable fundamentals allowed funds to execute buy-and-build strategies and other value-creation plans, expanding into new retail health categories. For example, Fidelio Capital acquired VetFamily, an operator of veterinary clinics. Oaktree Capital Management acquired IASO, a Greek network of maternity/gynecological diagnostic centers and clinics. Impilo acquired The Fertility Partnership from White Cloud Capital and then acquired VivaNeo from Waterland Private Equity in an effort to build a European fertility market leader.

Political, regulatory and language constraints still limit the scalability of certain retail health provider platforms across borders, limiting broader investor interest in this space. Investors have been less interested in healthcare-heavy providers with direct exposure to reimbursement trends. 

That said, some investors are pursuing scale and multiple arbitrage (adding cheaper individual practices as bolt-ons, at a lower multiple than the main platform) across nearly all verticals in retail health. These add-on acquisitions are active in Europe, but not reflected in overall healthcare deal count because they take place in the name of the platform, not the fund.  

Investor interest spread to retail health derivatives that play upstream, providing services to consumer-facing providers. For example, EQT acquired Igenomix, a provider of fertility laboratory services, for $450 million. As the market for traditional retail health assets tightens, we expect to see greater interest in companies that provide tangential services to direct-to-patient providers. 

Many smaller provider assets in nontraditional retail health verticals are building scale and will soon reach a size that appeals to PE funds. We expect investors will soon seek out smaller assets ripe for consolidation as well as a few large assets waiting to be sold—nursing homes and radiology chains among them.

Biopharma and related services: Both branded and generics keep growing

Biopharma activity ticked higher in 2019 to 30% in all deals in Europe, up from 25% in 2018. Investors made large bets that included the $10.1 billion Nestlé Skin Health carve-out, the region’s largest deal of the year. This carve-out was predicated on favorable underlying growth in the aesthetics business, a strong prescription dermatology pipeline, few difficulties carving out from the larger corporate parent, and opportunities for performance improvement.

While the largest deal of the year came in the branded pharmaceutical space, generics also continued to generate acute interest. The market offers sustained profit opportunities across most countries, and the fragmented nature of the sector calls for consolidation.

Two large platforms completed numerous deals in branded generics. Bain Capital and Cinven-backed STADA Arzneimittel made four healthcare acquisitions, including Biopharma’s pharmaceutical prescription and consumer health business to expand presence in Ukraine, and six of GlaxoSmithKline’s over-the-counter products. Advent-backed Zentiva completed multiple healthcare acquisitions, including the Central and Eastern European business of Alvogen. Next to this deal, Alvotech struck a strategic partnership deal with STADA Arzneimittel on the commercialization of biosimilars, reinforcing sectoral activity and supporting exit valuation for CVC Capital Partner’s Alvogen.

Investors’ interest in biopharma continued to extend to services as well, including contract development and manufacturing organizations (CDMOs) and commercial research organizations (CROs). For example, Ampersand Capital acquired Vibalogics, a CDMO that specializes in viridae, live bacteria and aseptic processing, and Permira acquired Quotient Sciences, a UK-based provider of early-stage drug development services.

Medtech and related services: A focus on outsourced services

Turning to medtech, activity remained relatively flat at 24 deals in 2019 compared with 23 in 2018.

Notable product-oriented deals included Eurazeo Capital’s acquisition of DORC from Montagu Private Equity. However, investors focused mainly on services that benefit from underlying end market growth, as well as the increasingly common practice of outsourcing noncore functions. Thus, Dentressangle bought specialty orthopedics CMO Marle from IK Investment Partners and The Carlyle Group.

Investors in Europe are still navigating the Medical Devices Regulation (MDR) and In Vitro Diagnostic Medical Devices Regulation (IVDR) reforms. They struggle to price these risks or opportunities into asset valuations. In addition, European healthcare systems are giving closer scrutiny to prices.

HCIT: Investors search for companies that can expand in multiple countries

HCIT deal activity in Europe, meanwhile, remains limited. Historically, the European market for HCIT grappled with impediments to growth compared with the US, due to the diversity of languages, regulatory systems and healthcare markets across Europe. 

Yet investors are starting to pay closer attention to the sector, as it holds substantial opportunity and high valuations. This is particularly true for companies whose software does not touch reimbursement issues. This group includes staffing management software, clinical trial management software, and software that addresses pharmacological and medical issues, such as digital therapeutic and diagnostic solutions. The industry still needs to find an alternative to recoding for differences in reimbursement systems, where modularizing for language can bridge the other barrier to seamless cross-country growth.

A second wave of assets in the space has emerged, with companies coming out of their growth equity phase and generating interest among PE funds. Most European HCIT investments in 2019 centered on patient outcomes and provider efficiency. For example, Vitruvian Partners invested $50 million in Dental Monitoring, which helps orthodontists measure patients’ aligners. Investcorp acquired Cambio Healthcare Systems, a provider of clinical decision support, clinical information systems and patient flow management.

We expect even more interest in 2020, as several assets using more traditional software solutions (such as software for managing hospitals) will come to market, as well as newer digital platforms that are starting to emerge as market leaders and cross a size threshold that makes them more relevant to PE investors.

European funds also displayed greater interest in North American assets in 2019, taking part in a large share of the top deals there. For example, JAB Holding invested in two US healthcare companies in 2019, including Compassion-First Pet Hospitals and National Veterinary Associates, both US providers of veterinary services. Nordic Capital invested in US-based Orchid Orthopedic Solutions and ArisGlobal.

Returns: Still lower than in the US

European healthcare returns historically have been lower than in North America. Healthcare investments made between 2009 and 2016 in Europe averaged a gross multiple on invested capital (MOIC) of 1.95, vs. a 2.42 MOIC in the US, according to Bain analysis in an exclusive partnership with CEPRES. Several factors contribute to the gap: a subscale, fragmented private payer landscape with a partly uncertain future, more public activity in the provider sector and cost containment efforts that hit healthcare-heavy assets.

However, European investors have started to raise dedicated healthcare funds because they have seen the gem investments that experienced strong exits and returns through the years. GHO Capital raised the largest dedicated European healthcare fund of roughly $1 billion, and with the ADIA involved in the LGC and Nestlé Skin Health acquisitions, other sovereign wealth funds and family offices may play more active roles in European healthcare. For example, as previously mentioned, Dentressangle, the family office of Norbert Dentressangle, acquired Marle, the French manufacturer of implants and prostheses.

Outlook: The strongest interest in companies with little reimbursement exposure

Looking across the regulatory and political landscape, we see a number of changes continuing to affect investment at the country level: MDR, Brexit, German healthcare reforms and UK pharma reform. We explore these in detail in the chapter “Investors must consider the potential effects of regulatory reforms worldwide.”

By and large, governments in Europe will actively monitor and secure the availability of required healthcare services. Pressure on budgets will create further opportunities for investors who can help promote efficiencies in the space.

Therefore, demand for healthcare assets should remain high across Europe in the near future, on the back of strong underlying market dynamics, healthcare’s outperformance relative to the general market, record levels of dry powder, greater appetite for carve-outs due to high multiples, appetite for public-to-privates, and the pipeline of secondary assets. Investor interest in assets with less reimbursement exposure will remain high, particularly for investors weary of regulatory reforms. We also expect demand to spike for HCIT assets and specific areas within retail health, such as in vitro fertilization and ophthalmology.

No doubt, investors will scrutinize asset valuations, potentially pushing back on some assets deemed too expensive. Some funds postponed the exit from several assets last year because of lower-than-expected valuations. This could accelerate in 2020, unless sellers back their equity story with solid facts, and potential buyers underwrite higher multiples with solid upside cases and value creation plans.

This article is part of Bain’s 2020 Global Healthcare Private Equity and Corporate M&A Report. Explore the contents of the report here or download the PDF to read the full report.


Ready to talk?

We work with ambitious leaders who want to define the future, not hide from it. Together, we achieve extraordinary outcomes.