Matthew Lee: During the past 12 to 24 months, the cost of capital has increased as a result of interest rates going up. Certain strategies in the provider services space and buy-and-build have become more challenging as a result. However there are areas in health and life sciences which continue to see activity; such as medtech, health IT / tech and pharma services where there are international end markets, multi-country presence, growth and margin growth opportunities.

While inflation has caused an increase in salaries and other operating input costs, the dynamics of products in the medtech industry and the international growth stories recorded in pharma services are easier for investment committees to support than domestic only people heavy businesses with the multiples holding up as a result.

RD: Is PE investment in the veterinary market set to continue at its current pace and will we see further consolidation? What are your thoughts on the Competition and Markets Authority’s (CMA) planned investigation into the veterinary market and its domination by larger groups?

Matthew: The CMA is looking at the UK and will likely take their review into a full market investigation, which is driving large corporates to increasingly focus their attention on Europe.

In the UK, we are watching to see what is going to happen. My sense is that there will be a pause on any substantial M&A for clinics in the UK while the CMA has a spotlight on the market. Interestingly the CMA did deliberately use the words “disposals” in their initial announcement which has caused a few operators to pause for thought, especially those with investments across the animal health ecosystem.

In Italy, Gruppo Animalia has recently brought in investment from Charme Capital and the valuation was reportedly very competitive. This suggests that despite the cost of capital putting a damper on buy-and-build provider services investments, provider services subsectors that are able to demonstrate strong like-for-like growth at a revenue level are still attracting attention.

RD: Across sectors, how can firms ensure positive patient outcomes while still achieving returns?

Matthew: Looking after patient outcomes leads to positive returns, because if you do the right thing by delivering quality of care, then the financials tend to look after themselves. Whereas if you get it the wrong way round and you get poor quality gradings, your financials quickly turn south.

Dirk-Oliver: In recent years, we have seen more of an arbitrage play in the provider space. For reimbursement structures, it is increasingly important that you have relevance both in the market and for the patient, so consider the quality of provision for patients as well as what you bring into the system. Good medicine going forward is about reflecting on diagnosis, cures, technology and trends. Regulators are also more robust which makes it safer to operate in these areas.

RD: What is the outlook for private equity deals in the global healthcare technology sector given they have been in decline since 2021?

Dirk-Oliver: One of the core sectors private equity is looking at is healthcare and technology. There may not be the number of assets we have seen in the past, but nevertheless, there are still highly valuable assets coming to market during the next 12 to 18 months. If you look at some of the sub-sectors in these areas, there is still good deal flow. There may be more scarcity than in recent years, but that makes it more exciting for
firms like us.

So, 2021 and 2022 may not have exceptional years, but the outlook for these sectors is good. These are areas that are not dependent on cyclicality. They are buying in on demography, technology and development, so there will always be interested parties and volume.

Matthew: While governments are not issuing blank checks for the funding of healthcare, technology is able to help providers in the system do more with less when costs and volumes are going up and financial pressure on the system is rising. Technology businesses that can support the healthcare system and funders achieve more for less money are going to be successful, and that is where you see private equity investors getting excited about opportunities in the health IT space. In recent months there have been a number of sale processes launched in health IT / software in Europe, so it won’t be long till we get a read on investor appetite, which I sense will be positive if those businesses are not oversold.

Dirk-Oliver: To a large extent, it comes down to how you monetize data; there is a lot of data sitting in healthcare. It is not only about AI process optimization software, but also about what can be done with data in healthcare and how to make it work. This is where some partners are struggling but it is also an exciting question to ask over the coming years.

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