Investing in Europe’s healthcare market is a savvy move for many investors. It’s largely independent of economic cycles, making it even more desirable when recession worries loom. Simultaneously, the ageing population in Europe, plus the drive for better preventative medicines and an increasing reliance on private healthcare is reaping rewards for healthcare market investors.
Since the takeover of nursing home operator Casa Reha by ECM Equity Capital Management GmbH in 1998, increasing facilities have been purchased. It hit a temporary peak in 2017, following four years of steady growth.
Investors are interested in a host of providers, from care facilities and home care to outpatient care services, hospitals, rehabilitation clinics and doctor surgeries.
Unpicking types of investment
Healthcare facilities are predominantly taken over by private equity investors (capital collection points with individual ‘pots’ of money to invest). Company shares aren’t traded on a stock exchange, so the investment remains private.
The sole goal of a private equity firm is to sell an acquired company for the highest possible profit, as quickly as possible. Minority shareholdings are rare because they aim to control strategic decisions. Managers from the private equity fund will often ‘support’ the existing management with decision-making and day-to-day operations.
The investment strategy that is most common is the ‘buy and build’ strategy. First, a platform company is acquired through an initial investment. This is then promoted by the investor’s management in its growth and consolidation. An active and targeted buy and build strategy then integrates complementary acquisitions into the platform company.
Who is investing?
The private equity companies that are specifically investing in German healthcare businesses mostly come from Great Britain. They are closely followed by other German companies, the U.S. and France. 210 purchases were made by private equity companies in Germany in 2017.
Main areas of interest
Over the past three years, two main areas of interest stand out. Almost half of purchases made were of nursing facilities or services and a third were of medical care centres, including doctor and dentist surgeries, medical laboratories and hospitals purchased as MVZ carrier companies.
Who do private equity firms sell to?
When looking to sell, private equity firms frequently turn to other private equity companies in a secondary buy-out. 21 per cent of European healthcare deals are between two private equity firms.
Returning to nursing home operator Casa Reha, this was sold four times between 1998 and 2015. This situation is most common due to public and non-profit organisations being unwilling to participate in a bidding process – or being priced out of it completely – the same applies to small private operators. At this stage, only large firms and international health care groups can compete.
Historically, healthcare has been seen as a ‘safe’ bet with consistent – but relatively low – returns. With disruption on the horizon, however, this may soon change. Technology like artificial intelligence (AI) and the Internet of Medical Things (IoMT) is having a ripple effect across the sector. Tech giants are starting to test the waters, with Google, Amazon and Alibaba all recently investing in healthcare.
For now, investment is the mainstay of private equity firms, but in the next decade, the sale of Europe’s healthcare providers may look very different.
About Christian Bashiri
Christian Bashiri is a Principal Consultant of Healthcare & Life Sciences at Carmichael Fisher Executive Search, based in Hamburg.
For a confidential conversation about how Christian and the team can help you hire your next senior hire in the medical technology or devices spaces, contact him directly here.