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Press release

2020 vision: Healthcare private equity sees record year with disclosed deal values climbing to $78.9 billion

2020 vision: Healthcare private equity sees record year with disclosed deal values climbing to $78.9 billion

Bain & Company’s ninth Global Healthcare Private Equity and Corporate M&A Report follows developments in the sector as global markets prepare for a slowdown

  • março 09, 2020
  • min read

Press release

2020 vision: Healthcare private equity sees record year with disclosed deal values climbing to $78.9 billion

New York – March 9, 2020 – Healthcare private equity had a banner year in 2019, topping off a decade of remarkable growth. In the face of growing global macroeconomic instability, total deal values disclosed climbed to $78.9 billion dollars in 2019, the highest values on record. Total deals reached in 2019 numbered 313, slightly down from the 316 deals completed in 2018.

These are the findings from Bain & Company’s ninth Global Healthcare Private Equity and Corporate M&A Report, released today.

“With valuation multiples arguably near a high, the bar is rising to invest and deliver differentiated deal returns in healthcare private equity,” said Kara Murphy, who co-leads Bain & Company’s Healthcare Private Equity practice. “Funds will need to think proactively and creatively about their investment theses and put in a lot of hard work on value creation plans to deliver.  We are cautiously optimistic that investors that put in this hard work will continue to achieve industry-leading deal returns in the vibrant healthcare industry.”

According to Bain & Company’s analysis, in exclusive partnership with CEPRES, North American healthcare PE investments made during the past recession saw a multiple on invested capital (MOIC) nearly 50 percent higher than other sectors.


Healthcare private equity and M&A by the numbers

The increasing size of healthcare deal values stemmed primarily from large buyouts, as the average deal size rose roughly 25 percent in 2019, with 27 deals reaching values of $1 billion or more, compared to 18 such deals in 2018.  This includes the largest buyout in at least the past decade—the $10.1 billion acquisition of Nestlé Skin Health by EQT and Abu Dhabi Investment Authority (ADIA). This increase in large deals indicates the confidence investors have in placing a greater percentage of portfolios in the sector.

While North America activity rose modestly, values jumped 58 percent to $46.7 billion in 2019, up from $29.6 billion in 2018. Europe saw an 11 percent increase in values to $19.7 billion, largely fueled by the Nestlé Skin Health acquisition, continuing the trend of gem biopharma assets composing most deal value in Europe. This was slightly offset by Asia-Pacific which saw a decline in volume from a record-setting $16.2 billion in 2018 to $11.5 billion in 2019, driven mainly by slowing activity in China. Despite the slowing pace of activity, this remain a 60 percent increase over Asia-Pacific’s five-year-average. 

Along with deal activity, healthcare exits also posted a banner year. Disclosed deal value rose 29 percent to $40.8 billion and count rose 13 percent to 126.

In the adjacency of corporate M&A, deal value rose 24 percent in 2019 on the back of two megadeals: Bristol-Myers Squibb’s acquisition of Celgene for $97 billion and AbbVie’s purchase of Allergan for $85 billion. In past years, corporate healthcare companies have increasingly turned to M&A to place option bets on disruptors in their respective industries and prune underperforming and noncore assets.

“Growing stores of dry powder must be put to work,” said Nirad Jain, co-head of Bain & Company’s global Healthcare Private Equity and Corporate M&A practices. “Because investors view healthcare as a safe harbor, they will continue to direct capital to the sector. For the year ahead and even further out, we expect to see growth in deal activity across geographic regions. In North America, uncertainty around the November elections might pull deals forward to the first half of the year.”


Trends to watch

Biopharma continues to be hot with deal value rising nearly 150 percent, by $24.2 billion in 2019, encompassing most of the value growth across sectors. This is thanks to several megadeals, namely the Nestlé Skin Health acquisition, composing about 25% of the biopharma total. Advances in cell and gene therapy along with life sciences diagnostics sparked excitement and drew capital from both sponsors and corporates. We expect to see continued interest from investors.  

Investment in Healthcare IT (HCIT) roughly doubled in value since 2018 rising to 17.5 billion in 2019. Value was pushed by two of the biggest deals of the year—Press Ganey and Waystar—which accounted for about 40 percent of disclosed deal value. Investors were excited about HCIT tied to payers and biopharma, in addition to ongoing interest in provider IT.

Assets that incorporate data and analytics continue to be attractive sources of competitive advantage for investors in healthcare. Bain & Company expects to see greater demand for companies that focus on monetizing useful healthcare data.


2020 vision and beyond

Looking ahead, the likelihood of a recession will be palpable throughout 2020. An election year in the United States, and the unfortunate ongoing coronavirus crisis, will cause additional instability. However, healthcare companies have shown resilience in past recessions. Investors will have to sharpen their focus on operating fundamentals rather than relying on multiple expansion.

“As multiple returns fizzle, operating shortcomings will be exposed,” said Ms. Murphy. “To outperform their peers, firms will need to creatively assemble companies, plan for value creation during diligence, and hit their deal revenue growth and margin projections with sound operating strategies.”

Editor's Note: For more information or to arrange an interview, please contact Katie Ware at katie.ware@bain.com or +1 646 562 8107.


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