Private Equity Activity in Healthcare and Other M&A Tidbits


Private Equity Activity in Healthcare and Other M&A Tidbits

For the first time since 2005, private equity groups (PEGs) invested in more healthcare companies than they sold in 2016.  This year will likely look 2016 as PEGs continue to benefit from low interests, plenty of cash to deploy and the intent to aggressively pursue bolt-on acquisitions to their current portfolio companies.

Private Equity Healthcare Investments and Exits

While there is still modest interest in segments where the government is the primary payer, there has been a significant shift to areas with less exposure over the last four years. This will likely pick up speed with the new administration puts more focus on consumer-driven healthcare.  This fits nicely with private equity investment trends that started several years ago. For instance, the following have been hot segments as of late:

  • Dermatology
  • Ophthalmology
  • Dental Practice Management
  • Urgent Care

Of course, as most every private equity group interested in lower-middle market healthcare seemingly have the same areas of interest these days, it has increase competition for deals and valuations have followed. With that said, private equity deals are obviously getting done and we expect another solid year in 2017.

Below is a segment by segment over of private equity groups will be looking or have lost interest:


+ More interest

= Same interest

– Less interest

=  Behavioral Health (has slowed b/c of high valuation expectations)

+  Care and Case Management (specifically niche providers)

+  Dental Practice Management (although slowing b/c of high valuation expectations)

+  Dermatology

–   For-Profit Hospitals

+  Healthcare IT (Yes, EVERYBODY wants recurring revenue)

–   Home Healthcare

=  Hospice

=  Laboratory Businesses (niche testing businesses are of interest)

=  Medical Devices

+  Pain Clinics

+  Private Duty Home Care (if they can find an entry point)

–  Specialty Pharmacy

= Staffing (travel staffing is a +)

+ Urgent Care

Healthcare Venture Capital:  Outside of the private equity community, in 2016, venture capital invested heavily in telemedicine, consumer-driven technologies and other patient engagement healthcare companies.  According to StartUp Health, more than $8 billion in 500 companies, a 33% increase over 2015.   Could these technologies be the private equity targets of 2020-2025?  I think there will be a lot of cautious followers.

Strategic Acquirers:  While strategic players look to be more organically focused in 2017, they will still make up the bulk of the total buyers for the year.  (See historical M&A strategic vs. PEG buyers activity.) In a survey of 450 healthcare executives conducted by Capital One the following trends were identified:

  • Twenty-six percent of respondents who said M&A activity would drive their growth in the coming year reported organic growth initiatives as their top strategy.
  • Almost half of respondents said they expect capital needs to rise in 2017 and 42% expect they’ll require more capital in the year ahead; 25% said the same last year.
  • Thirty-one percent of executives plan to launch new segments or business lines to drive growth, up from 17% last year.
  • Thirty-eight percent of plans of executives reported M&A transactions are driving their growth plans for 2017, a drop from 41% last year.


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