Drivers of health and social care deal-making highlighted

Louise Fullwood of Pinsent Masons said the optimism that can be read from reports and articles published by data provider Pitchbook, investment bank DC Advisory and consultancy business Candesic reflect trends Pinsent Masons is seeing in its client work in the UK health and social care sector.

According to Pitchbook, private equity investors completed 125 transactions worth a total of €7.08 billion in Europe’s healthcare sector in the first half of 2024. While both the number and total value of deals are down compared to the post-Covid years of 2021 and 2022, the data compares favourably to the same six months in 2023 – there were 129 deals worth a total of €5.76bn in that period.

On a global level, Pitchbook said that deal activity in the healthcare sector had fallen 16% in the first half of 2024, but it has predicted an uptick in that activity “as interest rates come down”. That optimism is shared by DC Advisory, which highlighted the amount of “high levels of dry powder” ready to be invested by private equity firms and institutional investors.

DC Advisory said prospective investors will likely be attracted to healthcare businesses that invest in data analytics and new technologies like AI to make their services more innovative and efficient, and that there is also growing interest in so-called ‘carve out’ deals, where investors acquire stakes in particular business units that targets might choose to divest as part of a streamlining of their operations. It also said it is seeing healthcare businesses engage in refinancings in a bid to make their business more attractive to investors.

In an article published in the Healthcare Markets newsletter, Candesic highlighted the growing revenues of Europe’s largest dentistry providers and the “significant consolidation opportunities” that exist in that specific market.

Candesic pointed to the fact that the owners of many of the largest dentistry providers have held those assets for years and said that this could be a factor in driving appetite for deal-making as economic conditions improve and clinical demand grows. It said a further driver for consolidation could be the need for centralised investment in digital tools, software and manufacturing by dentistry providers.

Fullwood said: “In our work, we are seeing how lengthy delays for NHS treatment is driving growth in private healthcare and subsequent acquisition of, or investment in, private hospitals, clinics and specialist services – like physiotherapy. We are also seeing increasing digitisation of service provision, including in mental health, ADHD and autism services. While margins in the social care market are a limiting factor for investment in certain technologies, we are seeing the deployment of simpler and more affordable tech – for example, sensor mats around beds, to alert if a patient falls or gets out of bed, have been widely adopted.”

“A specific area that we see scope for investors to deploy some of their ‘dry powder’ in the coming months is in the UK pharmacies market. New legislation expected early next year will present considerable opportunity for deal making, since it will allow central 'hub' pharmacies to fulfil prescriptions for individual 'spoke' pharmacies – by either sending the medicines to the spoke pharmacies to dispense or sending out direct to patients. This presents obvious opportunities for efficiency and economies of scale and has not previously been permitted other than where all of the pharmacies are within the same legal entity,” she said.