Q2 2023 Healthcare Services Private Equity Update
Healthcare private equity activity continued to display resiliency in the second quarter of 2023, but investor sentiment was mixed as the quarter saw the aftermath of the first bank failures in years. The fall of several banks shook global markets with their rapid deterioration, which many VC and PE investors rely on for key sources of financing. Transaction volume and capital invested in Q2 2023 had been declining before the banks’ collapse, as investors evaluate the new reality of rising rates and broader macroeconomic headwinds. However, 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. Despite lower volume, high quality healthcare assets in the middle market remain highly sought after from investors.
PE exits have also continued to decline off 2021 highs and even 2022, owing part to a rewarding and eager IPO market and competition from SPACs. Rather than exit platforms in the first half of 2023, PE firms and their portfolio companies are primarily gearing up for 2024 and 2025 exits and Provident anticipates secondary exits to spike. Platforms that are focusing on both clinical and operational excellence will be rewarded in the future as the appetite for strong healthcare services businesses remains elevated and the supply and demand imbalance for quality assets becomes greater.
Comparing various segments of the economy, investors continue to gain comfort in knowing that healthcare services is 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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