Q1-2023 Private Equity Update

Q1-2023 Healthcare Services Private Equity Update

Healthcare PE activity continued to display impressive resiliency in Q1-23, but investor sentiment was mixed as Q1-23 also saw the first bank failure in years with Silicon Valley Bank collapsing in March. The fall of SVB shook global markets with its rapid deterioration, which many VC and PE investors rely on for key sources of financing just as credit became harder to obtain. Transaction volume and capital invested in Q1-23 had been declining before SVB’s collapse, as investors evaluate the new reality of rising rates and broader macroeconomic headwinds. That said, private equity firms still hold an abundant amount of capital, but the velocity in which funds are deploying capital has certainly slowed. Provident anticipates PE groups will remain bullish on bolt-ons for existing portfolio companies with existing financing relationships and expect fewer new platforms created this year due to the financing environment.

PE exits have also continued to decline off 2021 highs and even 2022, owing part to rewarding and eager IPO markets and competition from SPACs. Rather than exit platforms in 2023, PE firms and its portfolio companies are gearing up for 2024 and 2025 exits. Platforms that are focusing on both clinical and operational excellence will be rewarded in the future as the appetite for high quality assets remains elevated, and the supply and demand imbalance for quality assets becomes greater.

However, investors can gain comfort in knowing that healthcare services are perceived as acyclical, as payors and the nondiscretionary behavior of healthcare insulate PPMs and other providers from radical changes in consumer spending.

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