PEWLive Deal Summit: PE investors find value in healthcare

Healthcare

With devastating lockdowns and the ever-present threat that Covid-19 continues to pose, the ability to cater to a population's healthcare needs has become top priority for governments and companies alike, a trend that accelerated in 2020 and will reverberate for decades to come.

At a time when demand exceeds supply of this most life-sustaining commodity, Private Equity Wire hosted its PEWire Live’s Healthcare Investing Summit that brought together GPs, LPS and other private equity experts to share their insights into the fast-changing healthcare sector.

One of the areas that the summit highlighted was how private capital could be a driver of change within the healthcare sector – something which we saw already early on in the pandemic; from March last year we started to record that healthcare deals were swiftly accelerating. They have subsequently stayed at a high level, increasing by a steady pace since lockdowns began to be implemented worldwide.

In fact, the number of healthcare deals where private equity firms were involved has increased by 21 percent since 2019, according to Bain’s tenth annual report, named the ‘Global Healthcare Private Equity and M&A Report’. Released earlier this week, it looks at M&A deal value and volume within the healthcare and biopharma sectors.  

Parallel to the inflow of capital into healthcare, consumers' needs and spending patterns have changed drastically during the past year, and more investment has gone into tech platforms, apps as alternative sites of care and groundbreaking new medical technology.    

Those developments are something which Charles D. Kennedy MD, managing partner of Blue Ox Healthcare Partners, has been keen to look into lately. “When as a private equity investor I look at the valuations, it can be a tough equation at times. We started looking at innovations with more juice per squeeze, so to speak”, said Kennedy. “That attracted us to the intersection of big data, or machine learning techniques, applied not to healthcare specifically, but to the underlying biology,” he continued.

In this way, it’s possible to evaluate patients at a molecular level, according to Kennedy. “The insights that are being driven by that have incredible value for prevention,” he explained. “So, we try to find the companies that both advance the science, take advantage of the technology, but most importantly deploy it in ways that drive better outcomes at a lower cost.” 

As the panel discussion was quick to point out, however - there's a difference between value and valuation. Commenting on value versus valuation within the healthcare space in particular, Jim Pieri, managing partner & CIO of Assured Healthcare Partners, asserted that his firm finds value around talent dynamics and focuses on ‘unscaled’ and ‘inefficient’ companies.

He added: “We’re looking for situations where not too much value has been created already, so that we have the opportunity to find it ourselves or earn it. If there’s enough fixing to do, enough maturity to do, the management team is incomplete, the company is immature or had some bad luck, typically you can create some of that value in the first year or two.”