Private equity’s push into health care is on pace for a record volume of deal making, according to alternative investment data provider Preqin.
Health-care-focused private equity funds have done $56 billion of deals this year through November, close to surpassing a record $57 billion in all of last year, Preqin said in a report released December 6. The data firm expects deal activity to keep rising, with funds sitting on $56 billion of uninvested capital.
“The private equity healthcare industry is booming: strong fundraising, record levels of dry powder available to invest, and record numbers of deals in the sector,” Christopher Elvin, head of private equity at Preqin, said in a statement on the report. “It is a testament to the healthcare industry’s growing importance for private equity.”
Fund managers are doing slightly bigger deals this year. The private equity industry has announced 585 health care deals, compared with 619 deals in all of 2017, Preqin said, meaning the average deal size has risen about 4 percent this year to $95.7 million.
“One of the attractive elements of investing in health care is that it’s increasingly important in everybody’s life,” said Jonathan Killion, a managing director in Carl Marks & Co.'s advisory practice. He added that health care is one of the biggest spending categories for consumers in the the U.S. today.
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KKR & Co.’s purchase of Envision Healthcare Corp. is the largest private equity deal in the health-care sector since the global financial crisis, according to Preqin, which pegged its value at $9.9 billion. Nashville-based Envision said KKR completed the purchase of the physician services provider in October.
Most of the dry powder available for health care-focused private equity deals is targeting North America, with $36 billion earmarked for the region, Preqin data show. A total of 84 private equity funds have held a final close this year, raising $22 billion.
“For at least a couple of years, health care has been one of the most highly valued spaces in the mid-market,” said Brad Coppens, managing director at One Equity Partners, a middle market private equity firm. “It’s also one of the most active, if not the most active space from a transaction volume perspective.”
Coppens noted that doing deals in the health care industry is not without risks, with regulatory uncertainty surrounding the Affordable Care Act being one of them.
“To be a healthcare services investor, you have to be comfortable with constant uncertainty,” Coppens said.
One way to cope, according to Killion, is to take advantage of high valuations by selling assets.
“We’re seeing high asset valuations and high levels of interest,” Killion said. “That’s leading to a seller-friendly market.”