The Health Care Investor : Healthcare Lawyers & Attorneys for Life Science Companies & Investors

Pitchbook has reported on a decade of private equity investments in a four-part series focusing on investments, fundraising, exits and fund returns.   The highlights are illuminating of the period from 2001 through 2010, with the unsurprising peak in 2007 and drop thereafter.   

Highlights from the investments portion of the report include the following:

• The decade saw 17,361 private equity deals totaling $1.73 trillion of invested capital.
• Lower middle-market companies accounted for 81% of the decade’s deal flow .
• The median private equity investment multiple peaked at 11.5x in 2008.
• The average time between investments dropped from six months in 2002 to 2½ months in 2007.
• Add-on deals accounted for 46% of PE buyouts by the end of the decade.
• Texas saw more PE deals and invested capital than any other state.
• Business Products and Services was the top industry for PE activity.

Pitchbook is an independent research firm  providing data, news and analysis to the private equity industry, with a variety of online and other products.

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The healthcare sector saw a significant decrease in the number of private equity transactions completed last year. Pitchbook reported that approximately 125 deals were completed where private equity funds invested in healthcare companies in 2009. This is down from 233 in 2008. This reduction takes into account both general economic conditions which saw declines in almost every sector, the overhang of healthcare reform where many investors saw tremendous uncertainty in the healthcare sector due to the potential for healthcare reform and the concern that some funds were over-invested in healthcare. Interestingly enough, much of the over-investing in healthcare resulted less because sponsors increased their percentage of investment in healthcare but more due to significant reductions in the values of the other investments which left their overall percentage of investment in healthcare higher both on the equity or debt side and thus over invested in healthcare. 2010, however, has already seen significant pickup in healthcare investing and new interest in the healthcare sector.

Fellow McGuireWoods attorneys Krist Werling, Scott Becker and I recently published a short article discussing the following four key concepts relating to healthcare investing:

1) Types of buyers from the perspectives of goals and strategies;

2) Types of target companies from a compliance orientation perspective;

3) Healthcare diligence issues; and

4) False claims recoveries issues.

It is critical for any investor in healthcare to have a firm understanding of each of concepts.  The more knowledgeable the investor in these areas, the more capable they will be to evaluate risks of investment. 

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