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Provident Healthcare Partners Provident Healthcare Partners

Q3 2024 PE Healthcare Services

Provident Healthcare Partners
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Q3 2024 PE Healthcare Services

General: Private equity healthcare services deal activity in Q3-24 remained consistent with Q2-24. A total of 136 deals were completed versus 142 deals in Q2-24, but there seems to be a shift in sentiment. Throughout most of 2024, bankers have expressed that their pipelines have been building up and investors eagerly awaiting more deal flow, but those deals are now launching. Most of the quarter-over-quarter decline, or stagnant deal flow, can be partly attributed to the softening in PPM deals this year, which have faced increased regulatory filing scrutiny in several states. Deals below $100M TEV are still closing at higher levels than those more than $100M TEV as financing these deals with buyer and seller equity have been easier and more effective than access to leverage. However, as the cost of debt starts to decrease, getting more favorable credit facilities should increase dealmaking volume across all TEV tiers. Additionally, investors are starting to feel pressure to deploy capital. Most of the deployment has been allocated to add-ons for existing portfolio companies, but Provident expects more platform deals to close in Q4-24 and in 2025.

Valuations: Amid the macroeconomic and regulatory battles, valuations have crept down or “normalized” since the 2020 and 2021 peaks. Seller valuation expectations are starting to moderate and the gap between buyer expectations are decreasing. However, high-quality assets are still demanding premium multiples, including pharmaceutical and life sciences services, as the market is experiencing a supply and demand imbalance for highly unique, A+ assets. Medical spa services and veterinary assets which also saw extremely high valuations the past few years, have also started to normalize as patients and clients are not willing to spend as much disposable income on these services.

Exit Activity: Although PE exit activity is not as robust in 2024 as some anticipated, there has been more confidence in the market and investors are starting to feel pressure from LPs to return capital. Q3-24 saw 24 exits, notably NMS Capital selling its portfolio company Flourish Research to Genstar Capital. The traditional lower middle market exit playbook comprises passing platforms upmarket to larger PE firms, however, the bid-ask spread for these assets is slightly more apparent at this level than founder and entrepreneur backed businesses looking to transact as noted above.

To print and download the full PE Healthcare Services Update report, please click below…

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