MEGADEALS ARE HERE TO STAY, AND THEY'RE REDEFINING THE HEALTHCARE LANDSCAPE

Bain & Company's 11th annual Global Healthcare Private Equity and M&A Report shows the resilience of the healthcare industry, with $151 billion in capital surging into healthcare globally in 2021

BOSTON, March 15, 2022 /PRNewswire/ -- 2021 was a record-breaking year for healthcare investors, bouncing back from the pandemic-induced lull of 2020. Despite the ongoing impacts of Covid-19, however, healthcare private equity saw record-levels of deal volume and disclosed value, with $151 billion in capital surging into healthcare globally and deal volume rising by 36%.

Bain & Company's 11th annual Global Healthcare Private Equity and M&A Report, released today, highlights the most important takeaway of healthcare private equity over the last year: the exponential rise in megadeals—deals valued at more than $1 billion.

In 2021, large healthcare private equity deals returned in force, with a record 30 transactions valued at greater than $1 billion. These deals caused disclosed value to more than triple to $122 billion from $38 billion the prior year. Notably, there was also an increase in deals north of $15 billion. With healthcare returns expected to remain strong, the continued growth in valuations will likely lead to a steady stream of large deals. The consortium, or bidders that were able to partner and pool capital together, will remain an important presence in this space, particularly for transactions above $5 billion.

Additionally, as the region continued its multiyear growth trajectory, Asia-Pacific markets are seeing increased consumerism and willingness to spend in healthcare, which has fueled activity, especially with investments in building a more robust consumer-centric digital health environment.

"The ongoing impacts of the Covid-19 pandemic continue to stress the supply chain, wrench forward the progress of digital care and stretch many sectors thin with labor shortages," said Nirad Jain, co-lead of Healthcare Private Equity at Bain & Company. "But the pandemic has also highlighted many new opportunities in the healthcare industry, encouraging innovation in segments, such as mental health treatments and at-home care. These developments will continue to entice more diverse investors to pursue opportunities in the healthcare sectors."

Apart from the pandemic, other structural changes are washing through healthcare systems globally that give reason for optimism. One positive shift is that technological innovations—including digital tools that redefine how patients interact with care, the use of artificial intelligence in drug discovery and software that enables value-based care—are helping companies build new business models. Due to these developments, the near- to medium-term future may see more healthcare assets going and staying private.

Biopharma: building strong innovation pipelines
In contrast to the market uncertainties of 2020, strong fundamentals in biopharmaceuticals produced a number of large deals in 2021, especially in Europe. Disclosed deal value surged to $33 billion, up from $20 billion the year prior. Corporate M&A activity also blossomed as buyers sought to enhance drug development capabilities and become more efficient.

Other factors should work in the industry's favor in the years ahead: aging populations in high-income countries will increase demand for therapeutics; and abundant government, university and private funding for R&D has built strong innovation pipelines across therapeutic modalities and disease states.

Providers: managing a tightening labor market
Healthcare providers were forced to adapt to a changing industry in 2021. New care models and supporting businesses fueled a record year for provider deals, with disclosed deal value reaching $51.3 billion, well above the previous high of $35.8 billion.

However, healthcare workers are leaving their jobs at higher rates as the pandemic continues to take a toll on their mental and physical health. This places an increasing pressure on provider organizations, with many facing higher labor costs and an inability to meet patient demand. Companies that helped fill these vacancies attracted new attention from investors in 2021.

Retail health was another key theme in 2021. The pandemic accelerated growth within the pet industry, fueling a surge in deal activity for veterinary care assets last year. The pandemic also increased demand for and strengthened employer commitment to mental health services. In the US and Europe, investors bought several brick-and-mortar mental health companies last year. And dental practices remain a hot category for investment, with specialty dental proving to be fragmented category ripe for consolidation.

Payers: addressing the social determinants of health
With costs rising rapidly and value-based care models maturing, the role of US payers is being redefined, leading to major opportunities for value creation. Disclosed deal value for payer buyouts rose to $15.3 billion in 2021, up from $4.4 billion in 2020. Given the diverse and largely private payer landscape in the US, the deal activity was concentrated in North America.

The pandemic exposed the profound effects of social circumstances on health outcomes, and as payers take on more responsibility for these outcomes, they will look for partners to address what influences health outside of the traditional purview of medicine. Thus, firms that help payers address the social determinants of health will attract more investment, and valuations will rise for companies that reduce costs and improve the member experience.

Medtech: strengthening supply chains
Investors completed 96 medtech deals in 2021, a sharp increase from 55 deals in 2020. Four of these transactions were also valued at $1 billion or more—the highest megadeal count to date in this sector. Deal value for medtech buyouts also surged to $40.8 billion from $3 billion in 2020, largely reflecting the $34 billion deal for Medline.

Amid ongoing supply chain frustrations, healthcare companies have sought providers that can reliably and cost-effectively supply essential tools and equipment. They are also prioritizing cost cutting related to equipment maintenance, repair and refurbishment, spurring deals of providers in this area. Outside of physical infrastructure, private equity has been attracted to digital supply chains and distribution infrastructure for providers. As providers and payers continue to reinvent care delivery, medtech companies also play a large role in supporting a shift to home-based care.

"Investors, who currently possess record amounts of available capital, have been increasingly attracted to the healthcare market, citing the industry's resilience, high returns, clear opportunities for innovation and ESG impact" said Kara Murphy, co-lead of Healthcare Private Equity at Bain & Company. "Investors that come out ahead will be keeping an eye on potential public-to-private transactions, the transformative role of technology, the momentum behind value-based care and global dynamics including the Russia-Ukraine war."

Editor's Note: To arrange an interview, contact Katie Ware at [email protected] or +1 646 562 8107.

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