As the world enters a phase of a global pandemic marked by an increasing rate of vaccinations, investors are seeking opportunities in the global (especially European) healthcare market. With some investment trends emerging, this article takes a look at what we have identified as the top ten, which has the potential to drive and shape the healthcare market in the short to medium term.
Expect to see more “private take” transactions
More and more “take private” transactions are being launched, particularly in the United Kingdom. Since the start of 2021, market experts have seen nearly £ 35 billion in deals launched in the UK alone. This tendency to “go private” is arguably due to the fact that public markets do not properly value assets. Compared to equivalent transactions in the private arena, assets are relatively undervalued.
More investment in infrastructure and sovereign wealth funds (SWFs)
Infrastructure and sovereign wealth funds are becoming increasingly active. These funds are now set up like the sector teams of private equity funds (sometimes recruiting from the same talent pool), so that they offer a better view of the market than before. Many infrastructure funds have also extended their core segments beyond traditional areas of infrastructure investment and see healthcare as “infrastructure plus”. As a result, more infrastructure funds are expected to enter into transactions in the health sector, adding to an already highly competitive sector and helping to maintain higher prices for assets in this field.
Prices remain high in general, with the highest prices paid for assets with the greatest growth potential
While some experts argue that investors pay inflated prices for healthcare assets, others believe there is good price discipline and a strong rationale behind the current pricing. If you look closely, you will see that there is a big difference between the different segments of health. Although multiples of healthcare earnings before interest, taxes, depreciation and amortization (EBITDA) average 14 to 17 times, market experts find that even higher multiples are paid in healthcare technology. with 20 times more frequent EBITDA multiples. At the other end of the scale, nursing home healthcare assets are currently trading around the multiple of eight times EBITDA. It is important for investors to understand the growth trajectory of the companies with the highest multiples and the structural changes in global healthcare that are occurring in the wake of the pandemic. Understanding trends makes pricing easier to understand, especially in cases where the assets will be held for the long term. The fact that some assets do not trade because ask price expectations are too high highlights the fact that investors remain disciplined and are only willing to invest where they can see growth and a defensible competitive position.
The market will continue to be a seller’s market
With the growing number of entrants to the healthcare market highlighted above and each investor looking for the next big growth opportunity, market experts are also seeing an increasing number of preventative offers for these assets, sellers applying aggressive terms of sale. Preemptive buyers are likely to have been following an asset for some time, which means they already understand and know the management team as well as the company’s growth trajectory and potential. As a result, a well-educated buyer can have an informed opinion on the risks of the transaction.
Conversely, some processes where there are fewer participants take longer, as the buying parties perform more in-depth due diligence and closely examine the business plan to see if the target is sustainable and resilient.
In the context of COVID-19, investors are now asking, “How does this business model work? And “If another blow comes, can it cope or be flexible?” In many cases, sellers will still refuse to sell if their price expectations are not met and will seek to extract value through other means, including through financing. They may also choose to revisit their own business plans and see how they can generate more growth and value before they return to the market.
There is a new awareness of health care vulnerabilities and more public and private investments are made in health systems
The needs of a global pandemic have informed a reassessment by governments of what needs to be done to build a next-level health system, including digitization, supply chains for pharmaceuticals and supplies and telemedicine, and in the process, new investment opportunities have emerged in these and other areas. Governments appear to have recognized that they must work with the private sector to achieve this goal and improve health care for their populations and address the vulnerabilities revealed by COVID-19. This presents real opportunities for investors and is expected to further increase the size of the healthcare investment market.
New countries can replicate successful franchise models
Market experts foresee more opportunities to replicate some of the franchise and chain models that have become popular in the UK and other parts of Europe where the model is not yet established, such as Germany and (to a certain extent) France. This includes companies from the dental, pharmaceutical, ophthalmology, wellness, veterinary and similar chains.
Compliance and Good Environmental, Social and Governance (ESG) earn a Premium
Targets with a robust compliance system earn bonuses of up to 10%, especially those who can show they have reported compliance issues in the past and fixed them. Although compliance has sometimes been seen as a pure cost center for investors, it is now seen as a positive added value. Having a strong compliance process in place helps sellers get a smoother exit as fewer issues arise in this area and therefore does not give investors on the buy side the opportunity to lower their purchase price. . The establishment of good governance also helps to stimulate valuations. Investors demand that the companies they invest in have strong ESG policies, as ESG factors are a key criteria in their investment decision making.
The shift from stationary to ambulatory continues
There is a trend outside of stationary solutions that are more ambulatory, creating investment opportunities for companies involved in all aspects of making this change happen. For example, this would cover telephone and internet consultations, telemedicine, self-testing and the use of applications to collect data. This can result in considerable savings in time and money for the consumer and the supplier.
There is a new momentum behind globalization
Health was already globalizing, but the pandemic served to accelerate this trend. The virtual trend raised awareness of the value and appeal of home care and quickly consumed itself. At the same time, a whole new world of consumer health products has started to gain traction, such as portable blood glucose meters. All over the world, people are using the same apps and the same data. Both market developments have led patients to access healthcare in new ways, with many more similarities than differences around the world. As this new reality becomes the basis from which healthcare solutions are developed, businesses are likely to grow geographically faster than they have in the past.
Public-private partnerships present significant opportunities
There have always been tensions between the provision of health care by the public sector and the involvement of the private sector in it. Today there is an almost universal commitment, effort and focus to improve health care, and there is no argument that the private sector has a significant role to play.
This is partly based on the government’s limited cash flow (after all the pandemic programs that have been put in place to maintain their savings). Against this backdrop, there has not been a better time for the public and private sectors to work together to tackle the major health issues arising from the pandemic (for example, the backlog of elective surgeries).