Private Equity Healthcare Acquisitions

In light of private equity’s continued interest in healthcare and the risks associated with private equity ownership of healthcare companies, the Private Equity Stakeholder Project tracks private equity-backed healthcare acquisitions each month and produces an annual report exploring trends in private equity deal activity. See below for a catalog of PESP’s blog posts and reports on private equity healthcare acquisitions.

A combination of factors has historically made healthcare an optimal space for private equity investment: a permanent demand for healthcare services, an aging population defined by a high disease burden, and the fact that many subsectors within healthcare are fragmented and therefore ripe for consolidation.

Consolidation, or gaining greater market share by acquiring multiple companies and rolling them up into one big company, can generate profits for private equity investors hoping to sell the company down the road. This does not translate to cheaper or better care for patients; the available evidence shows that consolidation among healthcare providers drives up the cost of care with little or no improvement in the quality of care. Some studies even show declines in care quality.

Private equity healthcare dealmaking reached record levels in 2021. Overall PE deal activity (in healthcare + all other industries) began to slow down in late 2021 and new dealmaking is currently “sluggish.” The primary driver behind this trend is a high interest rate environment that makes it more challenging for firms to sell assets and buy assets because debt is now expensive and can be challenging to secure. Private equity firms still see substantial opportunity in the healthcare arena, including healthcare providers, and we can expect to see more deals as interest rates come down. Indeed, Pitchbook expects global private equity and other private fund assets under management to reach $20-$24 trillion by 2028 (from $14.7 trillion now).

Using PitchBook, press releases, and news searches, PESP tracks three types of private equity-backed deals: leveraged buyouts, growth/expansion investments, and add-on acquisitions.

A leveraged buyout (LBO) is when a private equity acquires a company, financing a substantial portion of the acquisition by taking out debt secured by the company it is buying. This means that the debt doesn’t belong to the private equity firm and its investors—it’s instead saddled onto the company being acquired, such as a health system or hospital. In a leveraged buyout, 60 to 90 percent of the transaction will typically be funded by debt.
A growth/expansion investment is when a private equity firm invests in a company to help it grow, such as to finance new acquisitions. These differ from venture capital investments in that typically the company receiving the investment is more mature and the holding period for the investment will be shorter. These investments usually provide a minority equity stake to the investors, although it’s also possible for investors to establish majority stakes through these types of deals. Investors derive returns from their investment if the company successfully grows its revenue and improves its operating margins.
An add-on acquisition is when a private equity firm uses a platform company to acquire another company. The platform company is one that the PE firm has already acquired or created to then be used to acquire multiple companies in a particular sector. Using this strategy can help investors’ deals fall under the radar of the Federal Trade Commission (FTC) which is tasked with reviewing mergers and acquisitions that fall above the Hart-Scott Rodino threshold (which is about $119.5 million in 2024) for potential anticompetitive impacts. Deals that fall under this threshold do not have to be reported to the FTC, allowing private equity firms and other types of investors to use serial acquisitions of smaller companies with the help of a platform company in order to evade antitrust scrutiny.

In 2023 alone, PESP identified 1135 unique private equity deals in the healthcare space, consisting of 148 buyouts, 259 growth/expansion investments, and 728 add-on acquisitions to 422 unique platform companies. These deals involved approximately 675 private equity firms, business development corporations, venture capital firms, private credit funds, and other types of investors.

Stay tuned for the release of our analysis of 2024 private equity healthcare dealmaking.

Annual Acquisitions Reports

2024 – Stay tuned!

2023 – Private Equity in U.S. Healthcare – Trends in 2023 Deal Activity

2022 – Recent Trends in Private Equity Healthcare Acquisitions

Monthly Acquisitions Blog Posts (By Year)

2024

2023

2022

2021

2020

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