Healthcare Private Equity Down But Not Out, Report Finds

Healthcare private equity activity remained strong despite rising interest rates, high inflation, and other market factors, according to a new report from Bain & Company.

During the first half of 2022, healthcare private equity went toe to toe with the record-setting pace of 2021 both in terms of deal volume and value, the report stated. However, activity slowed in the second half of the year, causing the number of deals to fall between 20 to 30 percent compared to 2021’s all-time high of 515 deals.

Bain cited abrupt changes in central bank policy to combat inflation, as well as the Russian invasion of Ukraine, as some of the reasons why private equity firms pulled back on healthcare in the second half of 2022.

Despite these concerns though, 2022 is still poised to be the second-highest year on record for healthcare private equity in terms of disclosed deal value and deal count, Bain reported.

Private equity has had its sights set on healthcare over the last couple of years. The number of deals has been on the rise—with some bumps along the way—since 2009. Over the last couple of years though, healthcare private equity deals have skyrocketed.

Healthcare is an attractive industry for private equity. There is a major opportunity to reduce spending and waste in healthcare. Additionally, hospitals, practices, and other provider organizations are ripe for innovation that can streamline care and operations.

However, the profit-making goals of private equity firms seem to be at odds with the mission of provider organizations, which is to keep their patients and communities healthy. A recent study published in JAMA found that private equity acquisitions of specialty practices led to higher charges, while patients also used more services. Researchers said an uptick in services following an acquisition could indicate overutilization.

Major healthcare news outlets have documented how private equity acquisitions have led to less personalized care and even rural hospital closures.

Healthcare private equity activity remains strong despite stakeholder concerns. In 2022, there were 35 exits valued above $500 million, including Warburg Pincus’ impressive $8.9 billion sale of Summit Health-CityMD to VillageMD with support from Walgreens Boots Alliance and Evernorth.

“This demonstrates that investors are still willing to lean into compelling macro themes with strong platform assets,” Bain stated in the report.

Deals did become more selective though by the second half of 2022, with biopharma, life science tools, and related services becoming more attractive at that time. Bain also observed a shift in activity toward health IT companies.

“Investors see long-term HCIT opportunity around redefining care delivery and accelerating clinical breakthroughs, and in 2022, there was particular interest in buyouts for businesses that will help optimize operations, especially given the possibility of a recession,” the report stated.

Bain expects healthcare private equity to ride the momentum it has had over the last couple of years.