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2021 busts records for health care dealmaking

Mar 23, 2022

Illustration: Aïda Amer/Axios

Private equity investors put $151 billion to work in health care globally in 2021, more than two times the high watermark any year before, a new Bain & Co. report shows.

  • The unprecedented year also witnessed a soaring deal count, which was up 35% from 2020 to 515.

Why it matters: We’re entering “a period of discontinuity” as we enter 2022, but Bain & Co. partner Kara Murphy tells Sarah to expect private equity to be more resilient overall, and health care within the PE sphere, to keep outperforming.

  • “2021 set a high bar,” Murphy says. “The open question: Will we top it, or can we match 2021?”
  • From 2010 to 2021, the median IRR for health care PE deals topped those in all other industries by about 6 percentage points, according to the report.

State of play: It's arguably been a sluggish start to the year in deal-making after 2021's investment spurt, and we're now seeing a resetting from a valuation perspective.

  • The world is monitoring COVID’s transition from pandemic to endemic, inflation concerns, and more recently, the geopolitical risks and potential ripple effects triggered by Russia's invasion of Ukraine, Bain says.
  • "With that overall backdrop, we have guarded optimism for 2022," Murphy says.
  • Even if 2022 doesn’t match up, Murphy adds, if you consider deal activity in terms of a more standard benchmark (with 2021 as an outlier), there’s still enthusiasm across subsectors and geographies.

Between the lines: The health care investment boon isn’t a one size fits all phenomenon. 2021 saw the revival of the mega-deal, all while the share of growth equity supporting innovation gained more traction.

  • Buoyed by $34 billion and $17 billion leveraged buyouts for Medline and Athenahealth, the capital deployed for the top 10 deals of 2021 overall topped any other year before, the report shows.
  • 30 transactions were valued at greater than $1 billion, a new record.

Yes, and: The capital deployed by growth equity investors in health care set records by both deal count and capital invested last year.

  • Growth equity investment has grown at a five-year compound rate of 39%, with disclosed capital invested reaching $114 billion in 2021, the report shows.
  • Murphy expects this phenomenon to continue, as growth equity investors — including crossover funds like Tiger Global, growth-equity arms of large buyout firms like Blackstone, or traditional growth specialists like General Atlantic — recognize both the outperformance of investment returns in health care and the level of innovation opportunity that exists, Murphy says.
  • Whether it's enabling value-based care, employer-sponsored digital health tools, improving care operations or advancing drug development with technology, the transformation opportunities are vast.

💭 Sarah's thought bubble: We've seen an explosion of life sciences-focused vehicles, health care-only funds, and of course, mega-tech funds. Is it time for the emergence of a health tech-focused fund?

  • “If sector specialization is becoming more and more important [and] if LPs want access to the most attractive sectors (health care and tech),” Murphy says, “there's reason to believe that would be a very compelling fund to invest in.”

What we’re watching: A year ago private equity firms arguably couldn’t compete with public market valuations and SPACs, but the tables have turned.

  • The public-private valuation gap, notwithstanding the long-term opportunity for health care innovation, should tip further in the balance of favor toward PE ownership, Bain says.
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