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Private Equity need Industrial Advisors to find the best Life Science assets

Historically Life Sciences & Healthcare companies have gotten less attention from private equity (PE) investors than they might warrant mainly due to their complexity, making it difficult to understand the industry and identify good assets. However, in spite of growing economic and sociopolitical instability across the globe, Life Sciences and Healthcare attracted investors across the board at record levels in 2018.

According to Bain: "Disclosed deal values surged almost 50%, to $63.1 billion, topping last year’s level of $42.6 billion, and deal count rose to 316 in 2018 from 265 in 2017." Strong investment activity was tracked across all regions and in sectors such as healthcare IT (HCIT), provider and biopharma according to Bain.

The competition for assets have been fierce sparking creative transaction approaches and deal risk spreading with trends such as e.g.:

  • Increased focus on deal risk sharing partnerships with PE funds partnering with multiple investors to minimize the risk on buyouts of larger assets.

  • Increased interest from some PE Funds in public companies identifying carve-out or take-private opportunities.

  • Increased focus on value creation beyond the traditional category- or geographic leadership buyout.

  • Continued growing deal trend on the consumerization of health, hereunder a rise in concierge care, telemedicine and home health deals.

  • Increased interest in payer services assets such as e.g. General Atlantic’s investment in the home medical care & chronic care management company Landmark Health.

See the below deal value model from the Global Healthcare Private Equity and Corporate M&A Report 2019 by Bain showing private equity deal values continuing to rise:

In spite of an increased deal flow, many PE Funds shy away from investing in Life Sciences & Healthcare assets. Challenged by the inherent complexities of dealing with a fiercely regulated, competitive and high (clinical) risk industry, PE Funds are more frequently loosing out on opportunities to other investors and firms that are building merger integration muscles to better compete with corporate buyers such as PE Funds a.o.

In order to gain a bigger share of the Life Science M&A market and grab the best assets, PE Funds need to change their approach to working with advisors. Essentially, PE Funds need to retool and expand their support base with different in-market champion Industrial Advisors with technical expertise that can help evaluate the strength of the market as well as targets’ core business and growth prospects. Looking at a target’s relevant sources of value and e.g. clinical or regulatory risks with the support of an independent Industrial Advisor that possesses the skills, market experience and ability to translate insights and findings into investor language is a crucial prerequisite for gaining the necessary investment overview.

Since 2014, the heavy competition for assets and the flood of capital—both debt and equity— has had the inevitable effect of raising asset prices to all-time highs. Thus more than ever, PE Funds need qualified help to identify and separate the good eggs from the bad eggs.


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