Why PE should remain bullish on healthcare deals

Jeff Woods, EY-Parthenon US Co-Head of Healthcare, joins Winna Brown to explain why PE should remain optimistic about investing in the healthcare sector despite the short-term detriment of COVID-19.

Visit ey.com to read our latest private equity perspectives.

The assumption that the healthcare sector is “recession proof” has been debunked as the pandemic usurped traditional assumptions among both patients and investors. Now, there is heightened awareness of how patients access (or don’t access) the healthcare system after utilization plunged nearly 20%. According to EY-Parthenon research, 10% of Americans have decided not to access the healthcare system for the rest of 2020 or until a viable vaccine is available.

Despite the short-term impact of the pandemic, PE investors have been encouraged by recent return to volumes and are more optimistic now than they were in the spring.

The US payer mix is unique in a global landscape of government-sponsored healthcare systems. While there has not been a strong shift in favor of universal healthcare in the US, there has been a secular shift in healthcare expenditure from commercial to government that has accelerated due to rising unemployment caused by the pandemic. While the US healthcare market is ripe for efficiency gains, private equity (PE) can drive innovation in any healthcare market, regardless of the payer mix.

Shifting patient behaviors and preferences are accelerating experience-led transformation and inspiring an increasingly patient-centric approach, creating opportunities for PE to drive innovation and improve patient experiences.  

The healthcare/technology deal environment continues to be very active. The pandemic has impacted the deal lifecycle in several ways, including valuations and timeline to exit. In addition, PE has looked to deploy digital across the portfolio to address access, engagement, navigation, care transitions, cost management and staffing.

Summary of the PE/healthcare landscape over the next three to five years:

• Deal landscape remains very strong and is expected to recover to pre-COVID levels
• 2020 deal volume will be down 15-20% from 2019 but the worst is over
• Providers will be the largest deal category and healthcare/technology deals will be the second largest
• Private capital remains the fastest way to innovate
• The healthcare sector will no longer be thought of as “recession proof”