This article is part of Bain's 2022 Global Healthcare Private Equity and M&A Report
In the face of Covid-19’s widespread upheaval, healthcare providers were forced to adapt in 2021. New care models and supporting businesses blossomed, leading to a record year for provider deals.
Investors closed 214 provider deals, up from 145 deals in 2020; disclosed deal value rose to $51.3 billion from the previous high of $35.8 billion (see Figure 1). North America garnered the largest share with 126 deals, or 59% of the total, up from 74 in 2020. Deals also rose significantly in Europe, to 42 from 28. Deals in the Asia-Pacific region, meanwhile, rose only modestly to 42 from 39.
Disclosed deal value surged to a record, buoyed mainly by medtech and payer acquisitions
Scanning the global provider landscape, four major investment themes stood out in provider deals during the year:
- innovative primary care models to improve value and the patient experience;
- consolidation in retail health, specialty physician practices, behavioral health, and home services;
- private hospital acquisitions in Asia-Pacific; and
- global labor shortages exacerbated by the pandemic.
Innovative primary care models to improve value and the patient experience
A convergence of market trends has caused primary care in the US to evolve. First, value-based payment models, typically centered on primary care due to its critical role in managing overall population health, are on the rise. Second, Covid-19 has accelerated the adoption of virtual care. And third, patients are taking a more active role in managing their health.
These dynamics have fueled primary care investments from a range of financial sponsors, hospitals, health plans, pharmacies, and mass retailers. Investors gravitated to primary care organizations that use technology to improve access and the patient experience, often in the context of risk-bearing, value-based payment models.
Value-based models. In the US, the adoption of value-based payment models has steadily grown over the past decade across different types of insurance, encouraged by regulatory action. Value-based payment models (especially full-risk models) remain most prominent in Medicare Advantage plans. Following the playbook of Oak Street Health, next-generation primary care models that cater to the needs of older people and capitalize on capitated reimbursement models are continuing to attract private equity and corporate attention. In one of the larger 2021 provider transactions, One Medical acquired Iora Health, a value-based primary care group focused on Medicare, for $2.1 billion.
National US retailers also made large investments to expand their primary care capabilities and operations. Walgreens Boots Alliance’s acquisition of VillageMD, a value-based care provider, for $5.2 billion sped up its plan to open at least 600 Walgreens primary care practices by 2025. Walmart also announced plans to install 4,000 primary care “supercenters” in stores by 2029. Similarly, CVS Health announced plans to expand its primary care and wellness offerings by revamping MinuteClinic and HealthHUB locations, while closing 900 of its physical stores. For CVS, which is already deeply imbedded in healthcare as a pharmacy benefits manager, payer, and retail pharmacy, this reflects an opportunity to create value through more complete coverage of the healthcare value chain.
Virtual first. Catering to consumers’ demand for convenience and greater comfort with telemedicine, firms are building virtual-first primary care offerings. Large US payers and growth-equity investors made investments in this space. For example, Cigna, following its acquisition of MDLive, is launching virtual-first plans with select employers. Centene subsidiary Ambetter also partnered with Teladoc Health to launch a virtual-first plan. And the benefit navigation platform Accolade acquired PlushCare, a virtual primary care provider, in a deal valued at $450 million, in order to expand its care delivery capabilities.
As for the investor-funded innovators, Hydrogen Health, which delivers on-demand virtual primary care powered by artificial intelligence, was launched by Blackstone Growth, Anthem, and K Health. Firefly Health, a virtual-first primary health provider, also raised $40 million in a Series B round led by Andreessen Horowitz. And Transcarent, a virtual-first, fully at-risk model aimed at employers, raised $258 million in just over a year from multiple partners.
Concierge and membership-based primary care models. Private capital also flowed to providers that offer better patient access coupled with personalized care. For example, Goldman Sachs and Charlesbank Capital Partners acquired a majority stake in MDVIP, the largest national network of primary care providers operating on a private membership model. Forward Health, a prevention-focused, membership-based primary care network, raised $225 million in a Series D offering with participation from Founders Fund, Khosla Ventures, and SoftBank.
Consolidation in retail health, home services, specialty physician groups, and behavioral health
With patient volumes returning to prepandemic levels while care continues to migrate out of the hospital, private equity firms found many ways to invest across the spectrum of healthcare providers.
Retail health. While 2020 was marked by Covid-related service disruptions, 2021 brought renewed activity in retail health.
Dental practices remain a hot category for investment. In North America, investors were active in the general dental service organization model, such as Jordan Company’s acquisition of Premier Care Dental Management (Dental365) from Regal Healthcare Capital Partners. But specialty dental practices also drew investors as a fragmented category that’s ripe for consolidation. For instance, Harvest Partners acquired Affordable Care, a US chain of denture and implant services providers, for $2.7 billion. And Thomas H. Lee Partners joined Linden Capital Partners as equal investors in the orthodontics chain Smile Doctors at a $2.4 billion valuation, while Pamlico Capital bought Canadian Orthodontic Partners from Sheridan Capital Partners. On the oral surgery front, Oak Hill purchased U.S. Oral Surgery Management from RiverGlade Capital.
Interest in dental firms extended outside of the US. In Denmark, Intermediate Capital Group acquired Godt Smil, a chain of clinics. In China, Arrail Dental Clinic, a premium dental service network, raised $200 million in a Series E round led by Temasek Holdings, and later in the year filed for an initial public offering.
Covid-accelerated pet industry growth also helped fuel a surge in deal activity for veterinary care assets in Europe and the US. Silverlake and Nestlé purchased part of EQT’s stake in Independent Vetcare, a UK veterinary practice group, for $4.2 billion. CVC acquired a majority stake in Medivet, one of the UK’s largest veterinary groups with European expansion plans, for $1.4 billion. In the US, JAB Investors-backed National Veterinary Associates acquired Ethos Veterinary Health for $1.7 billion and SAGE Veterinary Care for $1.25 billion, two national networks of veterinary hospitals. And Warburg Pincus provided $170 million of growth financing to Bond Vet, a tech-enabled chain of veterinary clinics.
Specialty physician practices. Private equity firms in the US continued to invest heavily in physician groups. While the playbook varies by specialty, common themes include still-fragmented provider bases, opportunities in ancillary services, and the continued shifts of surgical volume to independent ambulatory surgery centers (ASCs).
While deals in established categories such as ophthalmology and gastroenterology are thriving, private investment also surged into specialties such as cardiology and orthopedics, which are more fragmented and often owned by hospitals. These new specialties stand to benefit from trends including Medicare approval to reimburse more procedures for ASCs, value-based care’s traction across insurance types, and physician and patient preference for outpatient surgery centers. Bain research has identified cardiology and orthopedics as the fastest-growing procedural disciplines at ASCs through the mid-2020s, and investors took notice. In cardiology, Webster Equity Partners launched Cardiovascular Associates of America in partnership with Cardiovascular Medicine. In orthopedics, Welsh, Carson, Anderson & Stowe acquired Resurgens Orthopaedics.
Women’s health continued to attract investments across a range of business models. Partners Group acquired Axia Women’s Health, a network of providers in the US, from Audax Private Equity. Kohlberg purchased a large stake in Ob Hospitalist Group, the largest provider of obstetric hospitalists in the US. And Unified, a practice management platform in women’s healthcare backed by Altas, partnered with CCRM Fertility, a clinically integrated fertility services platform.
Behavioral health. Last year may have been the calm before the storm in behavioral health investment. While there was less large-deal activity in some of the major behavioral health categories such as autism and substance abuse, the pandemic exacerbated the global burden of mental health conditions. Notable transactions in 2021 included Apex Partners and Oak HC/FT’s acquisition of Eating Recovery Center for $1.4 billion, and Medical Properties Trust's $950 million investment in the inpatient behavioral facilities of Springstone. In the Netherlands, Apax Partners acquired Mentaal Beter, a network of mental healthcare clinics, and Holland Capital Management acquired a 50% stake in Yes We Can Youth Clinics, which specialize in treating addiction, behavioral, and mental health issues in teenagers. Building on the theme of virtual care delivery, significant growth-equity investments were also made in mental health-focused digital tools and therapeutics.
Home services. The pandemic added momentum to services that help manage patients outside of a hospital. Traditional home care companies drew deals in the US and Europe. In a transaction valued at $5.7 billion, US payer Humana purchased from TPG and Welsh, Carson, Anderson & Stowe the remaining 60% stake in Kindred at Home, a large US home health and hospice provider. By becoming full owner, Humana bolstered its push to vertically integrate with provider services. Alpine Investors-backed TEAM Services Group also acquired 24 Hour Home Care, another US-based home care service provider. In Germany, Amira Partners bought PflegeButler Häusliche Pflege mit Stil, which offers home health services and assisted living facilities. And Palatine Private Equity acquired Routes Healthcare, a UK home care provider, from Key Capital Partners.
Specialty services such as home and ambulatory infusion service providers also attracted considerable interest in the US. For example, Waud Capital bought PromptCare, offering home-based respiratory and infusion therapy services, from Halifax Group. And Great Hill Partners made a $100 million growth-equity investment in IVX Health, a national provider of outpatient infusion centers.
Private hospital acquisitions in Asia-Pacific
As incomes rise across Asia-Pacific, demand for high-quality healthcare services follows. Both generalist and specialty models thus attracted considerable investment in the region. In Malaysia, Navis Capital Partners purchased a majority stake in Aurelius Healthcare, a private hospital system. In China, New Frontier Corporation acquired United Family Healthcare, a network of private hospitals and affiliated ambulatory clinics. In India, NewQuest Capital Partners acquired a minority stake in Cloudnine, an obstetrics and pediatrics-focused private hospital chain. And EQT Infrastructure acquired Icon Group, a network of cancer centers across Australia, China, New Zealand, Singapore, and Vietnam. Investor enthusiasm for private hospital groups in Asia-Pacific looks set for strong growth.
Labor shortages exacerbated by the pandemic
Labor force considerations have affected almost every category of investments in providers. Recruitment and retention issues took on greater importance during the pandemic. Healthcare workers who have burned out, worry about exposure to Covid-19, or are enticed by higher wages elsewhere have been leaving their jobs at an alarming rate. And the current inflationary environment raises concerns about further wage pressures.
Businesses that help address labor shortages have been in high demand in this environment. On that theme, Centerbridge and the Canadian pension fund CDPQ bought Medical Solutions, a travel nurse staffing company, for $2.3 billion. Technologies that improve employee productivity also garnered investment. Olive, an artificial-intelligence-as-a-service company that automates administrative tasks, raised $400 million in a round led by Vista Equity Partners and Base10 Partners.
Look for superior outcomes, growth playbooks, central infrastructure, and engaged teams
When markets experience such profound shifts as a pandemic, big investment needs inevitably emerge. That continues to be the case with healthcare providers.
Innovative provider businesses that manage to achieve a trifecta of improvements in the patient experience, health outcomes, and costs will continue to grow rapidly and stand out as attractive investment targets. As competition among new entrants heats up, several factors will distinguish the winners.
- Superior health outcomes at an affordable cost. Value-based payment models are growing across insurance types, so affordable, accessible care that delivers superior outcomes will earn greater customer loyalty and financial rewards.
- A strategic playbook for growth. As multiples get bid up, the bar also rises for adding value. A strategic playbook should guide scalable same-store sales growth, a repeatable process for new locations, and synergies from M&A.
- Scalable central IT infrastructure. Healthcare IT, such as centralized revenue cycle management (RCM) and population health management tools, are critical tools for winning in value-based care.
- Clinician and employee engagement. With burnout and job vacancies rampant, what’s the value proposition to internal stakeholders? Investing in a better work environment and technologies that streamline staffing and workflows will pay off with lower turnover and higher customer satisfaction.
Companies that help incumbent brick-and-mortar health systems compete with the upstarts will also present opportunities. Eager to preserve their market power and lucrative referral channels, legacy health systems will partner with companies that help them create a distinctive patient experience. Moreover, as value-based contracts account for more of their reimbursement pool, health systems will seek partners to help actively manage population health, sometimes through services that address the social determinants of health.