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.