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European Healthcare Opportunities

European Healthcare Opportunities

In the past years, The European healthcare sector has observed a number of major developments despite the industry’s assumed characteristic of being one of the most conservative and least open to technology innovations. The increasing reliance on the private sector to help societies pay for ballooning healthcare costs, the ageing population and the drive for better preventive medicines present now favorable circumstances for Healthcare to be a prize sector for making acquisition investments. Thus, nowadays the market welcomes Private Equity (PE) participants with a number of sizeable opportunities and encourages them to expand their presence in the industry.

This report provides a general overview of the European Healthcare Industry; it describes current challenges and defines potential opportunities the PEs can take advantage of. Last but not least, the report outlines the growth optimization possibilities for a stable future development.

European Healthcare

Based on Total Returns to Shareholders (TRS), the European Healthcare sector has outperformed most other sectors of the public market. As shown in Figure 1, between the years of 2010 and 2015, Healthcare TRS was an average 15%, outperforming the Financial, IT and Industrial sectors, where TRS was 7%, 11% and 8% respectively (McKinsey & Company, 2017). The number ensures the potential not only for market growth but also for PE players to create value. Historically, Healthcare sector has lagged behind due to regulation, localized market dynamics and high existing margins. PE can accelerate the transformation of the industry by initiating transformation programs, installing tougher KPIs and providing capital, thus, creating economies of scale.


Figure 1: Total Return to Shareholders (TRS), Source: McKinsey Global Institute analysis.
*Sample includes global companies with real revenues greater than $500 million in any year between 1995-2016.  TRS is calculated as compound annual growth rate and weighted for the market capitalization in each sector.

Some Healthcare sub-sectors offer particular opportunities for short-term gains. Figure 2 summarizes the sub-sectors that, as a result of the industry transformations, may become particularly attractive.

Heatmap of Investment Opportunities in European Healthcare

Figure 2: Heatmap of Investment Opportunities in European Healthcare, Source: Preqin

Current Challenges and Opportunities

Healthcare Industry generally consists of privately or family-owned businesses which favor stable growth in niche markets, where M&A activities are generally lower. Thus, these healthcare “dandies” have a tendency of slipping through the traditional PE nets. As shown in figure 3, over the last two years, only 24 acquisitions over $200 million were made, which proves the lack of deals at prices attractive to PE (McKinsey & Company, 2017).

Healthcare a relatively small part of European PE portfolios

Figure 3: Healthcare is relatively small part of European PE portfolios, Source: Preqin
*Only for deals with disclosed value, only deals within selected healthcare subcategories; only PE deals by top 20 PE companies, only deals with estimate deal size of EUR > 200 million

As a consequence, some businesses were passed through the hands of several other PEs without adding significant value to the companies themselves. Often, PE firms do not have dedicated, local teams developing the necessary expertise concerning the Healthcare sector, hence, PEs often miss potential opportunities. PE investors looking to increase their handle on this sector build local presence in the European healthcare market, either with their own or outsourced resources.

This approach is beneficial for a number of reasons. Firstly, concentration on “primary deals” and continuous investments in exclusive assets will assist investors in diversifying their portfolios and creating necessary value. Alternatively, PEs can benefit from buying and building in unconsolidated niche markets in a successful way to achieve fast scale-up (figure 4). This strategy assures continued growth and margin improvement in portfolio companies by realizing synergies. In addition, having feet on the ground and developing strong relationships with managers of potential targets is becoming more important in sourcing primary deals. A localized approach allows PE to freely navigate local regulations and market dynamics.

Sellers and buyers European Healthcare M&AFigure 4: Sellers and Buyers in European Healthcare M&A; *% of total deals > EUR 200 million; 2013-2016

Growth Optimization

Upon entry in the industry, PEs have an opportunity to introduce growth optimization strategies. The industry traditionally features elements such as low asset utilization, variable outcomes and limited automation. This dynamic is one of the key reasons behind making healthcare costs to rise on average by 2% above GDP growth (Eurostat, 2018). Assets addressing these issues present an attractive opportunity. A win-win situation is also possible with an investment in Big Data, which, among other things, enables continuous patient monitoring and care, thus increasing the quality of services provided. Furthermore, transferring best-in-class practices not only between national borders but also internationally changes the landscape of Healthcare industry in a positive way, giving PE investors more freedom in selecting the deal with the right fit.

Overall, the industry of Healthcare in Europe is an opportunistic sector for private equity investments. The market provides investors with possibilities to experiment, develop and maintain innovative solutions.


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