April 12, 2023 – Bain & Company’s 12th annual Global Healthcare Private Equity and M&A report was recently published, reflecting the continued resilience of the healthcare industry, with 2022 seeing near-record levels of healthcare dealmaking, in terms of both volume and value.
Despite a slowdown caused by macro-economic and geopolitical forces in the second half of the year, 2022 was still the second-best year on record for healthcare dealmaking, due in large part to the white-hot pace of investment at the start of the year. Total disclosed deal value reached nearly $90 billion, down from $151 billion in 2021 but still more than $10 billion more than the next-closest year. Bain’s new report shows that ample dry powder and a track record of returns will continue to attract healthcare-specific funds in 2023.
Looking ahead to 2023, funds are tapping into new sources of capital, looking to carve-outs and public-to-private deals, and looking to sub-sectors that may perform differentially well in the current market environment.
Sectors to watch in 2023
- Biopharma and life sciences remain attractive. Six of the top 10 deals last year were in biopharma, life science tools, and related services. Within these subsectors, more than 600 healthcare buyout deals have been executed over the past five years globally. In 2023, the bar is high to win the right deals as competition for these assets holds strong and valuations have run up, even within the current macro context. Investors here need to clearly define their strategy, crystalizing where a fund will choose to play and what gives that fund a right to win in the face of a potential downturn and beyond.
- Opportunities to expand around value-based care. Sustained macro trends continue to drive value-based care adoption across a spectrum of care models. While investment activity remains focused on primary care and Medicare Advantage, opportunities across other payer and specialty segments are expanding. Enabler models represent an attractive investment path, with adoption driven by a need for traditionally fee-for-service groups to participate in risk-based arrangements. Providers and value-based care enablers that can bend the cost curve with differentiated care models and advanced analytics are positioned to succeed. This is likely to accelerate as regulation increases, data from early adopters is seen, and more capability-enhancing technology floods the market. Bain’s analysis suggests fee-for-value arrangements will capture 15%–20% market share from traditional FFS providers in primary care by 2030, supporting further investment in the space.
- Adapting to AI breakthroughs. 2022 was a monumental year for generative artificial intelligence (AI), with new services emerging in imaging and text generation. AI is already accelerating therapeutic discovery, optimizing supply chains, and automating payer and provider back offices. Use cases for generative AI are just emerging. Stakeholders are watching closely and are ready to adapt when the time is right.
- Healthcare IT continues to grow. Despite healthcare historically underspending on technology, in 2022, healthcare IT (HCIT) buyout volume added up to be the second highest on record. With provider IT continuing to be the main driver, biopharma IT and payer IT are catching up. Within biopharma IT, we see interest in businesses that use technology to support workflow productivity and reduce clinical trial length. Payer IT deals reflect continued interest in technology focused on payer administrative functions.