Private Equity’s Presence in Health Care Is Growing

Private equity is expanding in health care, becoming a larger source of industry capital across buyout, growth, and venture strategies, according to UBS Group’s chief investment office.

Health care represented 14 percent of deal activity in private equity last year, up from 9 percent in 2007, UBS said in a note this week. Digital health companies are turning to private equity firms as their main source of capital, receiving $35 billion of investments in 2020, according to the report.

Although health care accounts for 5 percent of the world’s data, UBS said the industry remains one of the least digitalized. The investing opportunity for private equity is vast in the sector, with a total 146,000 private companies dwarfing the 2,700 publicly-traded health-care companies globally, according to the report.

“The universe of potential investable companies for private equity is larger,” UBS said. “Private equity is a primary source of capital for innovation, especially for early-stage drug discovery where corporate funding is often scarce.”

[IIDeep Dive:Private Equity Changes Everything]

Private equity funding is accelerating globally in health care — one of the few sectors with stable deal activity last year despite economic uncertainty during the pandemic, according to the report. UBS said North America is the industry’s largest market for private equity deals, representing half of buyouts globally.

The bank pointed to opportunities for private equity funds to consolidate “highly fragmented and high-margin businesses” within health-care services. Meanwhile, venture capital funds are focused on biotechnology and pharmaceuticals, particularly companies focused on cell and gene therapy.

“Private equity sponsors can provide exposure to innovative companies developing next generation therapies,” UBS said, adding that private equity investments “have accelerated rapidly in the life science sector.”

According to the report, private equity investments in life sciences totaled a record $104 billion across 3,800 deals in 2020. Last year was also the strongest for private equity oncology investments over the past decade at $42 billion, UBS said, noting that cancer drugs are nearly a third of the global pharmaceuticals pipeline.

Meanwhile, health-care tech companies are among the fastest growing in the industry, with a focus on digital medical records and health-care payment systems, UBS added. “Medical devices also remain in scope,” UBS said, noting that the area that saw a 9 percent compound annual growth rate for private equity investments between 2010 and 2020.