Investment trends and opportunities in the European healthcare market

As the world enters a phase of the global pandemic marked by an increasing rate of vaccinations, investors are looking for opportunities in the global (especially European) healthcare market. With certain investment trends emerging, this article takes a look at what we have identified as the top ten, which have the potential to drive and shape the healthcare market in the short to medium term.

Expect to see more “private” transactions

More and more “take private” transactions are launched, particularly in the United Kingdom. Since the start of 2021, market experts have seen almost £35 billion worth of deals launched in the UK alone. This tendency to “privatize” is undoubtedly due to the fact that public markets do not value assets correctly. Compared to equivalent transactions in the private sector, the assets are relatively undervalued.

More investment in infrastructure and sovereign wealth funds (SWF)

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 they offer better knowledge of the market than before. Many infrastructure funds have also expanded their core segments beyond traditional areas of infrastructure investment and view healthcare as “infrastructure plus”. As a result, more infrastructure funds are expected to strike deals in healthcare, adding to an already highly competitive sector and helping to maintain higher prices for healthcare assets.

Continued high prices in general, with the highest prices being paid for assets with the greatest growth potential

Although some experts argue that investors are paying inflated prices for healthcare assets, others believe there is good price discipline and strong rationale behind current pricing. If you look closely, you will see that there is a big gap between the different health segments. Although earnings before interest, taxes, depreciation, and amortization (EBITDA) in healthcare average 14 to 17 times, market experts are finding that even higher multiples are being paid in healthcare technologies with EBITDA multiples of 20 times more than is not uncommon. At the other end of the scale, healthcare assets in the care home sector 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 as a result of the pandemic. Understanding trends makes it easier to understand prices, especially in cases where assets will be held for the long term. The fact that some assets are not trading because sellers’ price expectations are too high underscores the fact that investors continue to be disciplined and only willing to spend 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 with every investor looking for the next big growth opportunity, market experts are also seeing an increasing number of preemptive bids for these assets, sellers offering aggressive sales conditions. Preemptive buyers are likely to have been following an asset for some time, meaning they already understand and know the scope of management as well as the company’s growth trajectory and potential. As a result, a well-educated buyer can have an informed view of the risks involved in the transaction.

Conversely, some processes where there are fewer participants take longer because the buy-side parties perform more substantial due diligence and scrutinize the business plan to see if the goal 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 continue to refuse to sell if their price expectations are not met and will seek to extract value in other ways, including through financing. They may also choose to review their own business plans and see how they can further drive growth and value before returning to the market.

There is a new awareness of health care vulnerabilities and more government and private investment is being 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 seem 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 could 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 the Germany and (to some extent) France. This includes businesses in the dental, pharmaceutical, eye care, wellness, veterinary and similar chains.

Compliance and good environmental, social and governance (ESG) practices gain a bonus

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 corrected 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 robust compliance process in place helps sellers achieve a smoother exit as fewer issues arise in this area and therefore does not give buy-side investors the opportunity to lower their offer price. . Having good governance in place also helps boost valuations. Investors demand that the companies they invest in have strong ESG policies, as ESG factors are a key criterion in their investment decisions.

The transition from stationary to ambulatory continues

There is a trend away from fixed solutions that are more ambulatory, which creates investment opportunities for companies involved in all aspects of making this change happen. This would cover, for example, telephone and internet consultations, telemedicine, self-testing and the use of apps to collect data. This can result in significant time and cost savings for the consumer and supplier.

There is a new momentum behind globalization

Health care was already going global, but the pandemic served as an accelerator to this trend. The virtual trend has raised awareness of the value and appeal of home care and has quickly become more consumerized. At the same time, an entirely new world of consumer health products began to gain traction, such as portable glucose meters. All over the world, people use the same applications and the same data. These two market developments have enabled patients to access healthcare in new ways, with many more similarities than differences in the world. As this new reality becomes the foundation from which healthcare solutions are developed, companies are likely to expand 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 almost universal commitment, effort and focus to improve health care, and there is no doubt that the private sector has an important role to play.

This is partly based on the government’s limited liquidity (after all the pandemic plans that have been put in place to maintain their savings). In this context, there is no better time for the public and private sectors to work together to tackle the big health problems stemming from the pandemic (for example, the backlog of elective surgeries).