The Deal Environment for Healthcare and Life Sciences
- As we near the end of 2024, deal activity remains highly selective, investment committees have a high bar and are focused on premium assets, and most investors are prioritising portfolio value creation. We observe a shift from cost reduction to growth strategies in portfolios. Additionally, services and technology are hot topics, and investor sentiment remains strong for biotech and pharma services.
- Private equity fundraising for specialist healthcare funds was slow in 2023, and our audience was split on the likelihood of it rebounding to 2021 levels within the next three years, with 53% saying it would not. Limited Partners are focused on performance, are hungry for distributions, and are increasingly keen on co-investment opportunities.
- There is a lot of dry powder in the system, a logjam of exits that need to happen, and financing available for the right deals. As the macro backdrop gets clearer, panellists were optimistic about transactional activity picking up in the next 12 months, particularly in the mid-market, though deal timelines may remain elongated. In all, 58% of our audience felt the 2025 deal market would most closely resemble 2019, rather than 2021 or 2023.
What’s Next for Medtech?
- The pace of innovation in medtech continues to revolutionise approaches to healthcare and drive deal opportunities. We see a growing focus by companies on the end-user experience and a desire to move up the value chain to be closer to patients.
- We expect more deals in 2025 as medtech becomes a growing element of both healthcare and pharma services, fuelled by AI and personalisation trends.
- There is a lot of optimism about the application of AI tools across healthcare sub-sectors, but investors are cautious about some use cases. In the medtech space, there are many AI tools already being used in R&D, and there is huge potential to speed up the discovery and commercialisation of medicines; however, issues of liability arise as AI involvement shifts to clinical decision-making or diagnostics.
- The regulatory landscape is challenging for medtech companies, with developing legislation in relation to devices, AI, data privacy, and cybersecurity all having an impact. However, these developments do create opportunities for specialised investors. From a cross-border market perspective, for example, investors would welcome global initiatives to harmonise regulations with a focus on patient outcomes.
Buy and Build in Pharma Services
- Pharma services assets are attractive to investors as we observe a macro shift in innovation, which is moving away from big pharma companies and into leaner biotech businesses. These biotechs have less appetite to invest in large-scale operations, creating opportunities for smarter commercial approaches working with partners in pharma services.
- Buy and build strategies work well for investors in pharma services, given the clear playbook and benefits gained from scale, geographical presence, and access to additional technologies that allow companies to stay with customers longer.
- Integration is critical to the delivery of these strategies, with culture recommended as a key area of focus during acquisitions, particularly cross-border transactions. The most successful deals involve starting early, building a shared vision, and ensuring management support staff are aligned around a flexible mindset.