Private equity activity in the healthcare industry rose to a disclosed value of $63.1 billion in 2018, the highest level in over a decade, boosted by large deals, management consultancy Bain & Co. said in an annual review.
Deal volume climbed almost 20% to 316 transactions, Bain said. Four of those deals closed for more than $4 billion, whereas only one did in 2017. KKR & Co.'s acquisition of Envision Healthcare, closed in October 2018, was the largest at $9.9 billion.
North America was the most active region reported. Private equity funds relied mostly on partnerships, public markets and nontraditional buyout structures, as well as "creative value creation strategies" in a competitive market, according to the Bain report.
"Delving into healthcare, any way you look at it, the sector had a banner year," Bain wrote in its report.
Private equity valuation rose by almost 50% year over year from $42.6 billion in 2017, Bain said, attributed to competition from financial sponsors and corporate acquirers.
The total disclosed deal value was the highest since 2006, and the 10 largest deals accounted for about 60% of that.
Analysts and bankers have anticipated a year of more frequent mergers and acquisitions. But as the market got crowded, Bain saw increases in partnering and other strategies in 2018, such as CVC Capital Partners Ltd. joining forces with PSP Investments and StepStone Group LP to buy Italian pharmaceutical company Recordati Industria Chimica e Farmaceutica SpA.
Bain expects competition for healthcare assets to remain strong in 2019, favoring creative deal-making and public market exploration.
On top of the unique strategies, Bain said investors may look to carve out sections of large companies that are looking to divest their noncore businesses. Three of the top 18 deals were carve-outs from larger parents, including the sale of Johnson & Johnson's LifeScan unit to Platinum Equity LLC.
North America leads in private equity
In North America, there were 149 deals in 2018 for a total disclosed value of $29.6 billion, Bain said, which was led by public-to-private transactions.
An aging population, chronic disease and demand for quality in the region garnered investors' interest, Bain reported, noting that the insulated nature of healthcare assets provided a safe haven from downward market trends.
Provider sector most active
Deals that involved providers and related services accounted for just over half of all healthcare private equity deals worldwide, and deal value rose about 90% to $35 billion in 2018.
Ten provider deals were greater than $1 billion in that year compared to seven in 2017.
Biopharmaceuticals followed with $16.5 billion across 79 deals, down slightly from $17 billion in 2017. Bain attributed the drop to the pricing and regulatory environment but said investors are still drawn by shareholder returns and high margins.
Medical technology trailed with $10.5 billion and was driven by five deals greater than $1 billion, again led by high profit margins in the sector.