Though private equity and venture capital (PEVC) investments in the global healthcare industry have been on the decline since 2011 due to the knock-on effects of the Eurozone crisis, regulatory ambiguity in the United States, and the recent economic slowdown in Asia-Pacific countries, PEVC deal activity will soon pick up as the growing aging population, increasing purchasing power of the middle class, and rising consumerism drive the demand for first-rate healthcare.
New analysis from Frost & Sullivan’s Private Equity and Venture Capital Investments in Global Healthcare Industry reveals the volume of PEVC deals decreased from 2,721 in 2011 to 1,453 in 2013. The study covers the pharmaceutical, biotechnology, healthcare equipment, healthcare technology, healthcare providers, and life sciences sectors.
The average value of global PEVC deals in healthcare does not quite follow the same trend observed in the volume of PEVC deals between 2011 and 2013. While the average deal value in private equity (PE) transactions increased by 6 percent during this period, the average deal value in venture capital (VC) transactions declined by 37 percent between 2011 and 2012 and then remained stable from 2012 to 2013.
"These trends suggest the number of mid-sized deals has been on the rise since 2011," said Frost & Sullivan Financial Analyst Dr E. Saneesh. "Conspicuously, the volume of high-value deals has been falling, with no deals made in this category in 2013."
Further, the largest share of PEVC deal activity is held by the U.S. followed by Europe. The U.S. and Europe are expected to continue being hubs for PEVC investment in the healthcare industry owing to several regulatory changes such as the implementation of the Affordable Care Act that aims to improve healthcare access among U.S. citizens.
In terms of exit routes, PE-backed mergers and acquisitions have been the most commonly employed option. Sponsor-backed offerings are also becoming popular, increasing from 30 in 2012 to 86 in 2013. Shortly though, the initial public offerings market will reestablish itself as the principle exit route and increase investor confidence in the healthcare industry.
"Within this scenario, investors looking for a means to earn quick returns with lesser risk are focusing on the healthcare providers sector," noted Dr Saneesh. "On the other hand, those who are ready to take greater risks and wait for a longer period to reap higher returns are targeting the pharmaceutical, biotechnology, and healthcare equipment sectors."
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Private Equity and Venture Capital Investments in Global Healthcare Industry / ND85-F1