11 trends contributing to faster rebound for health care industry
The health care industry has had a rough year, but it's bouncing back faster than many other industries.
Health care, like most other industries, has been on a roller-coaster ride throughout the pandemic. However, it is rebounding faster than many other industries on the strength of underlying trends.
Related: From evolution to revolution: investors focus on benefits and health care
Bain & Company took a close look at private equity developments as part of its “2021 Global Healthcare Private Equity and M&A Report.” The study found several significant trends.
1. Deal activity surged in the Asia-Pacific region, offsetting declines in North America and Europe.
Because of their confidence in health care tailwinds, private equity investors with a strong history in health care doubled down on the sector in 2020 in pursuit of compelling targets.
2. Activity focused on providers in the face of broader volume challenges.
In keeping with the past few years, the provider sector accounted for the most deals, with 74 in 2020, down from 96 in 2019.
3. The biopharma and provider sectors accounted for the largest share of deals in all regions.
Certain provider segments, including behavioral health, women’s health, veterinary medicine and home care, gained additional momentum in 2020. Behavioral health specifically has enjoyed increasing recognition as an important part of integrated care plans.
4. Medicare Advantage volume continued to spur high-single-digit growth.
Well-run providers have been able to profitably manage seniors through the full continuum of care, using at-risk capitated models, and then improve returns further by expanding the range of services they deliver.
5. Home and hospice health care investment also continued its upward trajectory.
Notable was the return of Thomas H. Lee to hospice investing after its successful 2018 exit of Curo with its acquisition of Care Hospice. As another example, St. Croix Hospice, a U.S. provider of hospice care, was purchased by H.I.G. Capital.
6. Tech-savvy providers found that the digital components of their business improved operations and sparked interest among investors.
KKR acquired 1-800-CONTACTS for $3 billion to target the longer-term opportunities outside of its core investments strategy, given the growing adoption of e-commerce and telemedicine amid the pandemic.
7. Strong biopharma services assets drove activity.
The traditional hunting grounds in services, such as contract research organizations, contract development and manufacturing organizations, and outsourced commercialization services, continued to attract strong investor interest.
8. Tumbling elective procedures created uncertainty for sponsors.
Uncertainty around the timing of a rebound in elective procedures served as a drag on deal volume. Almost half of the sector’s value came from just two deals, but no deal exceeded $1 billion.
9. Smaller transactions in services dominate.
Payer activity during the year jumped compared with the recent past, with 20 deals closed, compared with eight in 2019. Value also saw an increase in 2020 to $4.4 billion, up from $3.5 billion in 2019.
10. Health care IT offers many paths to investment success.
One popular avenue centers on combined payer-employer services technologies that facilitate care and patient management at lower cost. Many investors also see great promise in the modernization of traditional clinical trial development through more efficient trial operation, increased virtualization and improved solutions leveraging real\-world data.
11. COVID-resilient businesses will be the earliest targets.
Despite the crisis caused by COVID-19, health care’s rebound is expected to be stronger than many other industries and continue as a high-performing sector.
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