Down but not out: HCPE remained resilient in 2022
Healthcare private equity (HCPE) activity remained strong in the face of rising geopolitical tensions, high inflation, slumping stock markets, and spiking interest rates. Indeed, 2022 is poised to be the second-highest year on record for HCPE in disclosed deal value and deal count. The number of deals is expected to fall about 20%–30% from 2021’s all-time high of 515 deals to around 400 deals in 2022, roughly in line with 2020.
Abrupt changes in central bank policy to combat inflation in both North America and Europe led to a tight credit market that limited large-check financing. Anecdotally, funds suggested that traditional credit financing above $1 billion is largely unavailable, which may delay potential megadeal activity into 2023 or beyond. Available credit has come at much higher interest rates than the past few years, which led funds to take different approaches to financing to get deals done.
Deal flow in H1 2022 maintained the record-setting pace of 2021 and a strong Q1 pipeline persisted into Q2, but geopolitical uncertainty due to the Russian invasion of Ukraine in concert with global inflationary pressures changed the trajectory for the year. Global HCPE deal volume fell in Q3, and while the 96 deals in Q3 2022 is more than any quarter in 2019, funds that had been slammed with deal flow in 2021 felt a marked slowdown from prior quarters.
There is likely to be a spread of potential outcomes for HCPE for the next year. Some signals continue to point to a global economic slowdown in 2023. In this scenario, funds may consider updating their downturn playbook based on the section Healthcare Private Equity in a Downturn. On the flip side, in the face of uncertainty in 2023, funds that lean into new sectors may be rewarded. Life Sciences: White-Hot Competition to Win the Right Deals offers a view on the challenges involved with investing in biopharma and life science tools and highlights success stories from those subsectors.
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