Since mid-2022, the macro acquisition environment has faced the challenges of inflation and increasing interest rates, among a variety of other headwinds. Global deal flow is down from its 2021 peak. Yet, as this white paper will explain at a granular level, private equity investment in healthcare companies remains a viable and, in some cases, thriving asset class in relation to other target industries.

Expect private equity backed healthcare investing to remain active (relative to the field) during this time of economic uncertainty. If and when the macroeconomic headwinds clear, investments in the healthcare sector should be well-positioned for successful exit opportunities. Tailwinds currently supporting healthcare investing include the following:

  • Underlying market economics remain intact. Generally speaking (and with certain exceptions noted herein), there is sufficient white space between (a) the largest acquirers in the healthcare industry and (b) various platforms that are natural sellers to such players.
  • "Dry powder" in the private equity ecosystem remains at historic highs. The private equity industry ended 2022 with a record $3.7 trillion of dry powder.1 While some of this buying power will remain on the sidelines until uncertainty clears, the sheer volume of capital to be deployed is a tailwind pushing deal activity.
  • New and emerging areas for investment. Change and progress are inevitable in the delivery of healthcare services. This white paper will detail certain "white hot" areas for private equity investment, such as cardiology and pharma services, as well as identify opportunities ripe for increased scale and value-based investment across various sectors.
  • Inherent resilience of healthcare. Healthcare investing is more resilient as a sector, given that much of healthcare spending and service utilization persists regardless of economic climate.

Headwinds challenging the healthcare sector include:

  • Labor shortages and operational challenges. Healthcare service platforms are, by and large, people-intensive businesses. Ongoing wage and workforce issues continue to plague this space. Technology solutions, such as generative artificial intelligence, may relieve some pressure in this area and could be an investing bright spot and/or competitive advantage.
  • Higher interest rates and availability of debt financing. While this trend is not restricted to healthcare, components of the traditional private equity investment decision must be reconsidered in light of higher interest rates. There has been a sharp rise in transactions that are primarily financed with either equity checks or capacity under existing credit facilities. This headwind has created opportunities for those funds that can finance transactions with private credit solutions.
  • Growing antitrust regulatory angst. Over the past few years, antitrust enforcement in the healthcare transactional space has ramped up significantly. For better or worse, the federal antitrust agencies - the Federal Trade Commission (FTC) and Department of Justice Antitrust Division - are laser-focused on the effects consolidation may have on access to and cost of healthcare. State governments are following suit, and in some cases, leading the way, adding healthcare-specific oversight processes as well as further layers of approvals to transactions with pre-close review requirements. Finally, current FTC leadership and several state legislatures have taken a dim view of noncompete provisions, casting doubt on this customary tool for dealmakers seeking to protect their investments.
  • Litigation threatening practice management structures. While each state historically has taken a different enforcement position on its corporate practice restrictions, additional challenges are occurring in a few select places, including one lawsuit currently being litigated in California. While any such decision in the case will be limited, it is important to continue staying abreast of any changes in the corporate practice landscape.

While uncertainty persists in global acquisition markets, private equity investment in healthcare continues to grow and evolve. McGuireWoods sees strength in this industry, relative to others, and this white paper will provide observations and insights on the key investment niches that are important in 2023 and beyond. Specifically, it covers 27 investment areas, with a note indicating whether the specialty should expect steady (i.e., roughly equal), less or more private equity interest in that sector, as compared to historical averages. This is not intended to be an empirical study, but rather our collective analysis based on our own direct experience in these sectors. Even areas with "less" interest will continue to have viable investment opportunities.

The specific investment areas discussed are as follows:

  1. Aesthetics/Medical Spa
  2. Ambulatory Surgery Centers (ASCs)
  3. Anesthesiology and Pain Management
  4. Behavioral Health
  5. Cardiology
  6. Compounding and Specialty Pharmacy
  7. Dental
  8. Dermatology
  9. Ear, Nose and Throat
  10. Gastroenterology
  11. Healthcare IT and Tech-Enabled Provider Solutions
  12. Hospital-Based/Emergency Medicine
  13. Hospitals
  14. Laboratory Businesses
  15. Oncology
  16. Orthopedics
  17. Payor Services
  18. Pharma Services
  19. Physical Therapy, Occupational Therapy, Speech Language Pathology
  20. Podiatry
  21. Post-Acute Care
  22. Primary Care
  23. Urgent Care
  24. Urology
  25. Veterinary Services
  26. Vision Care
  27. Women's Health

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1. Bain Global Private Equity Report 2023, Bain & Company (2023), (last visited Jul. 19, 2023).

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