Private equity to keep focus on healthcare and life sciences

09 February 2021 6 min. read

While most markets endured a difficult 2020 due to the pandemic, assets in the healthcare and pharmaceutical sector saw their value demonstrated time and again. Thanks to their perceived recession resilience, this has led to increased investment interest in the sector which looks set to continue in the months ahead.

Like any other sector, the healthcare and life sciences industry has been impacted in different ways in this pandemic-driven recession. As well as massive disruptions to supply chains in the first half of 2020, the crisis resulted in economical slow-downs for many countries, leading in some cases to slow-downs in domestic pharma markets which have traditionally been sensitive to country economic growth.

At the same time, patient behaviour has changed, technology has been rapidly adopted in some sectors, and issues that have simmered below the surface in healthcare and pharmaceutical sectors now must be addressed.

With all that being said, according to Alvarez & Marsal (A&M) experts Raymond Berglund and Markus Peterseim, the industry has remained broadly resilient, and presents a key opportunity for investors in the years ahead.

Private equity to keep focus on healthcare and life sciences

However, simply assuming pharmaceutical and healthcare operators to be recession-proof is not enough to make the most of this opportunity. In a recent piece for Private Equity News, the pair split the healthcare and life sciences landscape into three categories, all of which attract a different type of investor: resilient, recovering and refocused businesses.


Berglund, who is the London based Head of A&M’s European Healthcare & Life Sciences practice, elaborated that despite “the pharmaceuticals industry successfully casting itself as the world’s knight in shining armour, riding over the hill to rescue us from Zoom calls,” doing so has seen them take on increasing costs of research and development, and a changing focus from small molecules to biologics to cell and gene therapy.

These shifts have required both the large pharma companies and their supportive networks of contract development and manufacturing organisations (CDMOs) to remain on the cutting edge of technology and profit opportunities – something which will have further ramifications in the year ahead.

“The industry’s ability to conduct research trials that were underway or were slated to start throughout the year has been disrupted,” Berglund explained. “We believe the pharmaceutical assets in the market generally have significant resiliency going into 2021. Because of this, consolidation in this sector is likely to accelerate. As a result, we are likely to see buy-and-build strategies and bolt-on acquisitions in the months and quarters ahead. Permira’s acquisition of Neuraxpharm and EQT’s recent tender offer to acquire the shares of Stockholm-listed Recipharm are setting the scene in this category.”


Following on from this, Peterseim – the Germany based Managing Director of Healthcare and Life Sciences at A&M – added that changes in patient behaviour resulting from the pandemic and government restrictions will also have an impact on certain healthcare segments.

Sectors that had appeared as safe investments pre-Covid, such as dental care and cosmetic surgery, for example, have seen significant downside impact and will require time to recover – as many of these services have been closed as ‘non-essential treatments’ during the lockdown months. While investing ahead of that recovery might seem attractive, investors should be aware time and cash will be required before these fields yield much gain.

“Anywhere elective procedures or patient choice exists, whether it be IVF, dental, ophthalmology, or others, will require investors to model scenarios for underwriting an investment,” Peterseim warned.

“Large multi-national medical device businesses are reviewing portfolios for underperforming and underinvested segments, while being required to make more difficult choices in their strategic planning. Opportunities for selling off these business segments in exchange for direct cash injections for their higher-growth focused segments will bring large corporates and private equity together in the quarters ahead.”


Finally, according to the two A&M experts, while the healthcare services sector has been slow to adopt new technologies and points of care, the Covid-19 crisis has worked as a rapid catalyst of change in this area. Patients have adopted new ways of accessing healthcare as a result of the lockdown, and because of this, while lengthy bureaucratic change in the industry previously slowed the impact of investment in new technologies, new service offerings must be considered for significant opportunities of growth in the years ahead.

Berglund stated, “One of the most radical changes brought about by the pandemic has been the shift in the ‘point of care.’ We have seen procedures move to the home, such as one provider significantly increasing their patients receiving chemotherapy in their home. We have also seen a rapid adoption of telehealth with groups such as Babylon and Proximie. In some health systems we already see telehealth offerings on the reimbursement lists. Prescribing apps – unthinkable only a year ago – have surged during the pandemic. While many of these services and technology were initially set up as a “work around” for inconvenience, many of these businesses are likely to stay and thrive.”

The future

Looking ahead, the healthcare and life science sectors are set to continue to be highly sought-after for private equity investors, due to the previously mentioned trends. However, investors cannot afford to rest on their laurels, as both Berglung and Peterseim expect that the landscape is likely to continue to change rapidly, particularly with the rollout of the Covid-19 vaccine. This means investors must closely consider the type of investment they are making and set the expectations for both risk and return.

Peterseim concluded, “Investors should understand where in the cycle a business currently is positioned, what technologies or offerings may disrupt or support its future growth, or whether it is a resilient opportunity that will push through any challenges that may arise as well as the state of the intrinsic innovation agenda. Once these answers are matched with investor profiles, all areas of the sector should benefit from strong investment and potentially even stronger returns.”