Analysis carried out by Results Healthcare, a corporate advisory firm focused on public and private healthcare and life sciences companies, reveals high multiples paid for businesses in the healthcare services sector.
Valuations have increased across the spectrum of pharmaceutical outsourcing businesses, which include digital health, outsourced pharmaceutical research and clinical trial businesses, with the average EBITDA multiple paid by private equity 11.9x, since the beginning of 2013.
Martin Gouldstone, Partner at Results Healthcare, says: “We are seeing that comparative processes and the scarcity of good quality pharmaceutical services businesses are driving up valuations. Given the amount of dry powder in the market, competition for good quality assets is fierce and this is maintaining the high multiples being paid by private equity businesses. Another aspect that is making the healthcare services sector attractive is that they are seen as very defensive investment against Brexit and President Trump. Businesses that operate globally or are scalable have a significant advantage over single market businesses.
“There have been a number of high profile exits from private equity in the sector, where they have dramatically enhanced returns in relatively short hold periods. The analysis shows that similar returns can be achieved by private equity by shortening the traditional three to five year hold period, which makes the sector attractive to private equity houses looking to deploy capital.”
The scarcity of assets in the GBP3-8m EBITDA range has also been a key factor in the high multiples paid by private equity investors for healthcare services companies. Results Healthcare looked at a total of 13 private equity backed deals completed in the last five years for the analysis.
Private equity hold periods for outsourced pharmaceutical research businesses have also decreased with the analysis finding that five deals (eResearch Technology, BioClinica, Phlexglobal, Synexus and InVentiv) were all exited in less than four years. In the case of Synexus and InVentiv the hold period for these assets was less than 18 months.
According to analysis by Pitchbook, the private equity industry has raised GBP180 billion in the first seven months of 2017, which is the highest level since before the 2008 global financial crisis. This is likely to spur on the trend of reduced hold periods, which have been driving up deal values and encouraging earlier exits.
