Funds changed their investment focus for last year to find "pockets of opportunity" to invest within the healthcare space.
An influx of investments at the start of the year resulted in 2022 becoming the second-best year on record for healthcare dealmaking, according to new research from Bain & Company. While macroeconomic and geopolitical factors caused a dip in dealmaking for the second half of the year, investors see AI investment and the move to value-based care as key reasons to keep an eye out for potential deals.
Deals reached almost $90 billion in 2022, a decline from $151 billion in 2021, according to Bain & Company, however, it is still $10 billion more than the next closest year.
"Healthcare private equity has earned a recession-proof reputation, typically outperforming overall private equity activity during economic downturns," Kara Murphy, co-lead of Healthcare Private Equity at Bain & Company, said in a press release. "While the space is resilient, investors will face continued challenges ahead as interest rates and labor costs continue to climb, and credit continues to be tight. As our clients invest to deliver better healthcare, they will need to differentially focus on value creation planning in diligence and post-close."
Looking at the rest of 2023, Bain & Company says funds are finding new sources of capital, looking at carve-outs, public-to-private deals, and watching sectors that may perform well in a challenging market environment.
Bain & Company says there are opportunities to expand around value-based care as "sustained macro-trends continue to drive VBC adoption." The bulk of investment activity is focused on primary care, but Bain & Company says there is a need for traditionally fee-for-service providers to get involved in risk-based arrangements. Bain & Company also found that 2022 was a "monumental year for generative artificial intelligence," noting that stakeholders are closely monitoring the adoption of AI and are getting ready to make moves when the time is right.
"Change is coming as 2023 unfolds," Nirad Jain, co-lead of Healthcare Private Equity at Bain & Company, said in the release. "Investors who have previously weathered down cycles have specialized playbooks for these times, to which they will adapt their usual approach. This includes playing to long-term trends and getting creative to close deals amid capital and inflationary restraints."
Amanda Schiavo is the Finance Editor for HealthLeaders.