Q3-2022 Healthcare Services Private Equity Update
Healthcare PE activity displayed impressive resiliency in Q3-22. Healthcare services are perceived as acyclical, as payors and the nondiscretionary behavior of healthcare somewhat insulate PPMs and other providers from radical changes in consumer spending. However, transaction volume and capital invested in Q3-22 continued to decline. Private equity firms still hold an abundant amount of capital, but velocity in which funds are deploying capital has slowed.
PE exits have also fallen off 2021 highs, owing part to rewarding and eager IPO markets and competition from SPACs. Heightened deal volume in 2021 was also driven by fears of a long-term increase in capital gains which led investors to exit portfolios at an elevated pace. However, platforms that have displayed both clinical and operational excellence are still being rewarded in the market through competitive processes and buyers still willing to give credit for various PF EBITDA adjustments.
Staffing shortages have also pinched most healthcare services organizations, consequently increasing costs, shrinking margins, and debilitating growth. Furthermore, valuation multiples have started to plateau or reverted to 2019 levels but have still displayed incredible resiliency compared to its CPG and technology counterparts.
Healthcare PE investors remain cautiously optimistic that deal activity in the lower/middle market will remain stable despite macro headwinds.
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