How to ignite deal making in the private equity health market

Odgers Interim’s Ross Gordon, Head of Private Equity Solutions and SJ Leatherdale, Partner, Healthcare and Life Sciences, recently co-hosted a panel event with healthcare consultancy, Carnall Farrar, to discuss the key issues of revitalising deal-making in the healthcare private equity space.

The private equity healthcare market is facing a longevity crisis. Adverse conditions and the increasing cost of capital has resulted in PE funds retaining healthcare assets for record time periods. As deal activity slowly returns with rates stabilising, there is an opportunity for differentiation in a crowded marketplace.

Health and social care specialist, Vernon Baxter, chaired the expert industry panel consisting of Matthew Lee, Managing Director, Lincoln International, Gaby Silver, CEO, Bioscript Group and Jim Weight, Managing Partner, Weight Partners Capital LLP. 

Ben Richardson, Carnall Farrar’s Managing Partner, started the discussion with an insightful overview of the UK health and life sciences landscape. He outlined the elective recovery challenge and how life sciences companies have bucked wider investment trends over the last year. Despite the market confidence building, the average hold periods for investments have significantly increased, making traditional fundraising cycles less compatible. However, with interest rates lowering and approaching a downslope, the panel remained optimistic about the prospects for deal-making in Q1 and Q2 2025, despite the rest of 2024 being busy with multiple processes launching simultaneously.

Key takeaways from the panel discussion:

Debt Challenges

One of the main points discussed was the debt challenge facing highly geared businesses. Even with the cost of debt now falling, many private equity health deals were raised with large amounts of debt in a very different market environment. These businesses still face a debt crunch, presenting significant challenges to prospective owners.

Market Congestion

With multiple businesses coming to market simultaneously, management teams and investors need to identify their competitive edge and points of differentiation. This congestion requires a strategic approach to stand out in a crowded field.

Management Fatigue

Extended investment periods are leading to more fatigue among management teams. Investors should consider bringing in additional capacity and skills ahead of any processes to provide both near-term firepower and succession planning. Interim management and independent consulting is a huge advantage to support many businesses, helping to mitigate such pressures and ensure a smooth operational flow.

Driving Value

Efforts to drive value in businesses ahead of an exit must be laser-focused and executed through to completion. Driving EBITDA value and delivering on the business plan is crucial in a highly competitive market.

Expert Insights

The importance of stability and forward-looking strategies in dealing with clients was emphasised, highlighting that the market has morphed, and a reality check has been brought to bear. Investors now seek more efficient ways to serve clients, leaning into automation and efficiency.

The importance of aligning expectations between buyers and sellers was also discussed. It was noted that growing valuations and having a clear understanding of operational deviations are critical for successful investments. Management teams should have a say in choosing their investors to ensure a partnership that aligns with the organisation’s operational understanding.

Strategies for Success

A data-driven perspective on the market highlighted that declining interest rates and the stabilisation of valuations are positive signs for the M&A landscape. The importance of maintaining corporate culture and incentivising key personnel within the business was also emphasised to drive retention and growth.

The discussion stressed understanding what motivates different employee populations within the business. The need for investors to grasp the unique aspects of the healthcare sector, which is often driven by a purpose beyond financial gain, was highlighted. This understanding can bridge the gap between investors and operational teams, ensuring alignment and long-term success.