Private equity fundraising gains momentum — where’s the capital being directed?
Private equity fundraising appears to be gaining momentum, with several healthcare-focused firms announcing sizeable closes in recent weeks, from Lauxera’s €520 million second fund, and Ampersand’s oversubscribed $1.5 billion vehicle, to Atlas Health Capital’s £400 million (~$538.01 million) debut fund and Water Street’s $1.9 billion raise. Investors continue to show confidence in specialist healthcare managers.
What is equally interesting, however, is where that capital is expected to go.
In these precarious times of geopolitical uncertainty and rapid technological disruption from AI, healthcare is increasingly being viewed as a defensive sector.
As Arvin Abraham, Partner at international law firm Goodwin, who co-chairs the firm’s European healthcare practice, told me while discussing a recent medtech acquisition, “For the longest time, tech has been the hottest sector for private equity, not just in Europe but globally.
“Right now, we’re in this unusually complex environment where the tech sector is under pressure from artificial intelligence — competing directly with existing SaaS business models — as well as from broader geopolitical instability.”
This can be seen even within healthcare, where investors appear to be gravitating towards more stable opportunities in areas that are a key part of the value chain but relatively derisked. In my recent discussions with market participants, the phrase “picks and shovels” kept coming up.
In a conversation, John DiGiovanni, recently appointed Head of Healthcare at European mid-market private equity firm Inflexion, which closed its $4.9 billion Buyout Fund VII earlier this year, articulated an investment thesis that seems to resonate across the market.
“We don’t build investment cases that rely on discretionary spending or capital markets staying open. We are focused on businesses where demand is driven by strategically additive innovation or compliance and operational-driven necessity,” he said.
That theme appears to be playing out across private equity. Investors are increasingly focused on assets that are derisked compared to traditionally cyclical and more capital-intensive healthcare services sub sectors, whilst still benefitting from healthcare’s structural demographic tailwind. Sectors such as medtech, pharma services, diagnostics, healthcare IT and outsourced services are gaining increased attention from investors.
Another trend that continues to emerge is the growing importance of cross-border strategies. Healthcare investors are increasingly looking beyond their home markets in search of scale, capabilities, and growth opportunities.
The recently announced merger between London-based GHO Capital and Singapore-based CBC Group is perhaps one of the clearest examples where two investors have agreed to pool capital and capabilities across regions to build globally scaled healthcare investment platforms. Once completed, the combined firm will become the world’s largest specialist healthcare private equity manager, with more than $21 billion in assets under management spanning medical devices, pharmaceuticals, diagnostics, healthcare infrastructure, and healthcare IT.
Likewise, firms such as EQT and Blackstone have recently raised record-breaking pan-Asian funds that are expected to pursue healthcare opportunities across multiple geographies.
Within Asia, China in particular has become difficult to ignore — whether as a source of innovation, manufacturing capability, or investment opportunity. “You need a China strategy,” Stephen Farelly, Managing Director, Global Lead Healthcare & Pharma at investment bank ING, remarked during our discussion. I still share some of the concerns that many have around regulation and geopolitical risk, however!
One thing is clear, though: with fresh capital now entering the market, deal activity is likely to pick up. But where will that capital ultimately flow? Will Europe regain momentum as a healthcare investment destination? Will we see greater cross-border capital flows between Europe and Asia? And which sub-sectors will attract the most attention next?
These are the factors I’ll be looking out for. But one conclusion feels increasingly clear: healthcare continues to attract significant institutional capital, but the bar for deployment has risen, which is likely to drive more competition for assets.
We would welcome your thoughts on this story. Email your views to Hemani Vipul Sheth or call 0207 183 3779.
