Private equity healthcare deals hit $90B in 2022, with AI one key 'sector to watch'
Private equity deals in healthcare hit nearly $90 billion in 2022, the second largest annual tally on record, Bain & Company reported Monday.
The number represents a drop from $150 billion invested in the industry in 2021 but is still $10 billion more than any other year on record. Investors continue to pour funds into radiology and other medical markets, seeking shelter from the volatility seen in other market segments.
“Healthcare private equity has earned a recession-proof reputation, typically outperforming overall private equity activity during economic downturns,” Kara Murphy, co-lead of healthcare private equity at Bain & Company, said in a statement. “While the space is resilient, investors will face continued challenges ahead as interest rates and labor costs continue to climb and credit continues to be tight.”
A recent report from Bloomberg highlighted some of the headwinds facing radiology and other specialties. Five companies in the healthcare space defaulted on their loans last year (compared to a historic average of one), while 33 saw their credit ratings cut by S&P. Standard & Poor’s revised its outlook for private equity-backed industry giant Radiology Partners to “negative” back in December, citing a tight labor market, delayed cash collections due to pressure from payers and “persistent” negative free cash flows. Moody’s, meanwhile, downgraded Rad Partners in November while noting some of the same factors.
“Notwithstanding the economic and policy headwinds that radiology practices face and must be addressed, we remain committed to adapting to the current environment by reducing debt and strengthening our balance sheet through organic EBITDA growth,” an RP spokesperson told Bloomberg at the time.
Specialties with favorable payer mixes, attractive consumer demographics and limited reliance on patient financing are most likely to remain insulated and able to maintain margins, the Bain & Company report noted. Radiology, alongside oral surgery and vision care, has historically been less affected in economic downturns, “making them interesting investment opportunities this go around.”
In the report, Murphy and co-authors highlighted two radiology-related private equity deals executed in Europe. Those included GBL inking a deal to acquire a majority stake in Affidea, one of the continent’s leading providers of imaging services. And EQT signed an agreement to acquire Meine Radiologie and Blikk, which together operate more than 65 radiology and radiotherapy locations in Germany.
Monday’s Bain & Company report also mentioned artificial intelligence as one “sector to watch” in 2023, given recent breakthroughs.
“2022 was a monumental year for generative artificial intelligence, with new services emerging in imaging and text generation,” the report noted. “Use cases for generative AI are just emerging. Stakeholders are watching closely and are ready to adapt when the time is right,” it added.
See the full report from Bain & Company for free here.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.