Healthcare private equity (HCPE) has proved more resilient than overall PE activity in prior recessions, with a track record of quick rebounds and compelling returns coming out of the downturn. However, Bain & Company in a new report notes the macro environment today is distinct from prior recessions, with inflationary and credit pressures shaping HCPE as we head into 2023. While the effects of these dynamics are felt across HCPE, the impact is most acutely felt in the provider space.
If recessionary trends continue, PE funds have an opportunity to tailor their strategies to meet current challenges by targeting downturn-resilient investment themes, being more creative in their deal strategies to make transactions happen in a credit-constrained environment, and updating value creation playbooks to respond to near-term headwinds against revenue expansion.
In prior downturns, HCPE remained an attractive area for investment relative to private equity overall. After the 2000–01 downturn driven by the dot-com bubble, returns for healthcare deals that closed in the next two years averaged more than 30%. Similarly, coming out of the global financial crisis in 2008–09, healthcare deals rebounded quickly; healthcare deals completed in 2009–10 had higher median returns than deals that closed the year heading into the financial crisis. This trend holds true for private equity broadly, but for HCPE the returns were particularly attractive: For HCPE transactions in the first two years coming out of a recession, the top quartile earned internal rates of return of roughly 40% or greater. Read more.
