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Boring healthcare services suddenly ‘more sexy’

Funds formerly looking at retail are now looking at retail health as a more secure option. Are we about to see a flood of new investors looking for more security?

UK-based sources tell us a lot of money has been raised by a lot of funds, and that powder kept dry during the worst of COVID – and a lot of these funds which had been raised to invest in retail are repositioning themselves to look at retail health. Which sectors? According to one advisor: “The deals where we are being asked to pitch for sell-side diligence are all in sectors which have not been affected by COVID – like ophthalmology which will probably recover quicker, and things like learning disability.”

A second consultant tells us compared to other non-healthcare sectors, healthcare looks comparatively stable and is increasingly ‘sexy’: “Going into the crisis there were a few processes which were ongoing at the time which were largely suspended and no one has been brave enough to put a (substantial) asset out at the moment. Deal activity has been affected.

“But the positive thing is everyone feels, as we come out of the gate, there’s a large ball of PE capital that needs a home and many funds are looking to increase their allocation into healthcare. I imagine multiples will benefit from that. Some ‘boring’ subsectors now look more appealing. Specialist care isn’t having a difficult time. Dialysis is going relatively well. Many of these are publicly reimbursed and looking better than on the private side. Those areas will see very little multiple contraction.”

So when will we see bigger deals coming through, and how long before we see a large acquisition by someone other than the usual suspects? Our second source thinks soon: “Nothing is being held on to by choice. PE doesn’t hold on to any asset for longer by choice. The (only) question is – is the EBITDA there yet? If it is, we’ll see a deal.”

We would welcome your thoughts on this story. Email your views to David Farbrother or call 0207 183 3779.