Bain: Global PE healthcare buyouts reach 3 year high

08 June 2015

Globally, private equity (PE) buyouts in healthcare reached a three year high at $29.6 billion in 2014, with deal volume relatively steady, research by Bain & Company finds. Total M&A activity in healthcare has however almost doubled, with strategic investors involved in $380 billion worth of deals. IPOs became an increasingly strong exist strategy for PE funds, while the value of firms sold to strategic investors increased in value from $22 billion in 2013 to $34 billion in 2014.

Healthcare systems are coming under increasing funding pressures globally, as governments and private providers look to contain reducing costs. According to a recent Bain & Company report, titled ‘Global Healthcare Private Equity Report 2015’, the effect of cost reductions has been a corresponding increase in M&A activity – with healthcare firms looking to pick up high growth assets, ditching low growth assets and make use of profitable taxation rules.

Strategic activity
The largest segment of the total healthcare M&A activity in 2014 came from the activity of strategic players – with a total of $380 billion in deals. While deal volume only increased 5% and is still below levels in 2012, the total value almost doubled to record levels. 

Global Healthcare M&A deal value

The reasons for the record activity come from several fronts, with a flood of cheap capital, resulting from continued low interest rates, and the need to find new growth engines in the wake of expiring patents and slowing healthcare expenditures, driving activity.

PE fund buyouts
For PE funds looking to expand their portfolios into healthcare, 2014 showed mixed results. The value of healthcare related buyouts reached a three-year high of $29.6 billion, which is nearly a doubling of the levels in 2013. Deal volume however dropped slightly (10%) from those of 2013, to 188. The value of deals came particularly from an increase in midsized deals – between $500 million and $1 billion.

Overall PE investment

The strategic reasoning behind the deals has not greatly changed over the past years, according to the consulting firm. Some investors were seeking ‘gem’ assets – and paying a premium for them; some funds were seeking to deploy their turnaround capabilities, therefore buying up carve-outs; with a lack of super-deals, large institutional investors moved down-market; while ‘buy-and-build’ investments too were part of the mix, with many firms building out previously acquired platform assets and a few firms buying new platforms.

Buyout-backed exists
The number of buyout-backed exits increased very slightly on 2013, with 1 more transaction than the year before. Of exists, IPOs increased in popularity – up from 31 in 2013 to 38 in 2014. While sale to strategic investors dropped slightly, from 70 to 63.

IPOs gained share of exit activity in 2014

While the deal volume to strategic buys decreased slightly, the value of those deals increased significantly, up from $22 billion in 2013 to $34 billion in 2014. With Bain’s expectation that “PE firms to keep taking advantage of attractive exit opportunities and to continue investing in portfolio value-creation activities to best position their assets for eventual exit.”

PE activity regionally and in target market
The location and volume of deals has not change greatly over the past years, with 188 deals in 2014 compared to 209 deals in 2013 and 195 deals in 2012. Both Europe and North America had high numbers of deals, yet the Bain analysis notes that investors could not find a great deal of good quality high price assets to buyout.

Global healthcare buyout deal count

While the kinds of healthcare companies drawing investors too has remained relatively stable, with ‘provider and related services’ remaining almost unchanged in terms of investor interest, the ‘medtech and related services’ grew significantly for investor interest between 2013 and 2014. Europe particularly increased its appetite for companies even as interest in ‘biopharma and related services’ waned in the region.

M&A activity by healthcare sector

Commenting on the increased number of PE healthcare buyouts, Nirad Jain, a Bain partner and author of the report, says: "It used to be that prominent healthcare PE deals occurred only here and there, but momentum has steadily ticked up.  In 2014, they made up 11% of PE buyout deals overall. This progression is a result of disruptive changes in healthcare that are enabling access to more efficient and affordable care, while also creating opportunities for PE to aid and accelerate those changes.”


8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.