A growing elderly and affluent population, together with opportunties to comsolidate, are driving increased private equity interest in the healthcare sector, according to a report from corporate finance specialists PricewaterhouseCoopers (PWC).
Overall, the healthcare sector remains active in mergers and acquisitions (M&A), says PWC, with 24 transactions worth £1.94bn in the first half of 2007. In 2006, there were 38 transactions with a combined deal value of £4.85bn across the whole year.
Private equity was a key driver of this activity and, the report says, is becoming increasingly dominant in the private healthcare sector, with eight out of the top 10 healthcare deals in 2006 having private equity acquirers.
This trend has continued in the first half of 2007, with two out of the top five deals being private equity backed. In 2006, deals done by private equity acquirers accounted for 90% of the value of all deals in the sector, and this dominance looks set to continue.
In 2003 the equivalent figure was only 30%, illustrating the rapid rate at which private equity investors have succeeded in penetrating the private healthcare sector.
The report predicts private equity involvement will continue to fuel deal activity in the healthcare spectrum. Financial investors are drawn to the sector by its favourable long-term macroeconomic and demographic drivers.
Life expectancy in England is forecast to increase by the middle of the 21st Century from around 77 to 83 for men, and from 82 to 86 for women. In addition, the sector remains highly fragmented relative to many other industries, and this gives private equity investors opportunities to create value by consolidation.
Furthermore, with banks and property funds able to accept lower returns than private equity houses, private equity houses have been able to create equity value by using sale and leaseback and opco/propco structures to increase the level of debt invested in the healthcare sector.
Neal Ransome, partner and head of the European healthcare corporate finance team, PricewaterhouseCoopers LLP, said: "Private equity remains attracted to the healthcare sector, despite strong valuations and the credit crunch."