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PE continues to snatch up healthcare services companies for roll-up plays

The healthcare services industry, touted as recession-proof, continued to attract PE interest through Q3 2022.

The healthcare services sector has continued to attract private equity investors this year. While opportunities for platform acquisitions have shrunk, relatively steady add-on activity suggests PE investments are still fueling the consolidation trends in this highly fragmented segment.

Private equity firms and PE-backed companies struck an estimated 725 healthcare services deals during the first three quarters of 2022, according to PitchBook’s latest Healthcare Services Report. That’s already higher than 2020’s tally, but the pace is unlikely to surpass last year’s record, which was an anomaly, said PitchBook PE analyst Rebecca Springer, who authored the report.

PE deal activity in healthcare services overall stayed robust. Add-ons, which have always accounted for the largest portion of deal activity in the sector, were in line with historical levels. At the same time, growth investments remained strong, with investors having already completed 73 deals in the first three quarters, according to PitchBook data.

However, the number of platform acquisitions fell short of the figures recorded for previous years: Only 43 platform deals were struck through Q3, about 6% of all PE deal activity, PitchBook data shows.

 

PE firms have held back from auctioning their platform companies as they face rising market uncertainties, valuation declines and difficulty in price discovery, Springer said.

“A firm isn’t going to bring a platform to the market if they don’t think that they will get a fair value for it, or if there’s a lot of market uncertainty,” she said.

In contrast, those same market conditions can push small healthcare players to seek buyers. For instance, small, independent medical practices are more motivated to sell themselves to a PE-backed platform when they face margin pressures and operating challenges, Springer said.

Looking ahead, cash-rich PE investors are expected to continue to pump money into the healthcare services industry, which is typically considered more recession-resistant.

There will be exceptions, though. Certain segments, such as nursing homes, home healthcare and behavioral health, may experience a relatively slowing pace of dealmaking, as they face headwinds ranging from staffing shortages to reimbursement pressures. Investors will take longer to find new valuations amid such factors, Springer said.


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  • Madeline Shi July 2024.jpg
    About Madeline Shi
    Senior reporter Madeline Shi writes about private equity and the debt markets for PitchBook News. Previously she has written for news outlets including Debtwire, With Intelligence (formerly Pageant Media), Business Insider and CoinDesk. Madeline earned a graduate degree from New York University’s school of journalism and is a graduate of Northeast Normal University in China. She is based in Seattle.
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