PE healthcare deal volume skyrockets so far in Q1

A spate of large healthcare PE deals has announced deal volume in the market racing ahead of last year’s pace, according to data from Thomson Reuters.

CCMP Capital Advisors unveiled yesterday the second largest PE healthcare transaction so far this year when it announced the sale of Medpace to Cinven. The deal is valued at roughly $915 million. CCMP, which invested $200 million equity in Medpace in 2011, stands to make 3x its money, Reuters reported.

Another large deal came in January. The Carlyle Group said last month it was buying Ortho-Clinical Diagnostics for $4.15 billion. A third large transaction saw Montagu Private Equity buying Rexam earlier this month for $805 million.

These large deals have helped global announced PE-backed health care deal volume nearly triple last year’s first-quarter tally only two months into the year. Globally, there have been 50 PE-backed healthcare transactions announced through Feb. 24, valued at $6.8 billion, according to data from Thomson Reuters. This compares to 118 transactions in all of the first quarter of 2013 totaling $2.3 billion. Add to this that the first quarter is typically slow for deal activity so deal volume may rise further this quarter.

In the U.S., PE-backed health care deal volume has led the charge. There have been 25 such transactions announced so far this year valued at roughly $5.8 billion, Thomson Reuters said. This compares with 44 transactions in Q1 2013 that totaled $949.9 million, Thomson Reuters said. (Thomson Reuters is the publisher of peHUB.)

The surge in deal volume marks a reversal from 2013 when PE-backed healthcare totals plunged by as much as 65 percent. Many sources blamed the Affordable Care Act, and those concerns have not entirely abated. “Obamacare makes the numbers less certain for the future of many companies,” a PE exec said. That concern is not shared by all, however: “We still have to provide healthcare,” according to a second PE executive. “Uncertainty breeds paralysis. Now certainty will lead to more transactions.”

Despite the boost in deal volume, the number of deals announced is still off compared to 2013’s pace. (There’s still one month left in Q1.) Healthcare investing remains slow and expensive this year, a third PE exec said. “Valuations are high due to PE multiples (being high) in general,” the source said.

Where will future deals come from? Expect consolidation among healthcare software providers and physician groups, the third PE source said. “The days of the single physician are gone,” the exec said. “It will be tougher for a single practitioner to be in private practice.”

Here are the top 5 global PE-backed healthcare transactions by disclosed deal value announced so far in the first quarter, according to Thomson Reuters.

5.   In January, Altaris Capital Partners agreed to buy the HealthTronics business of Endo Health Solutions. Thomson Reuters values the deal at $130 million.

4.  Last week, TPG and Shanghai Fosun Pharmaceutical agreed to acquire Chindex International for approximately $369 million.

3. Montagu Private Equity clinched an $805 million buy of Rexam earlier this month.

2. Cinven acquired Medpace for $915 million.

1. Earlier this year, Carlyle agreed to buy Ortho-Clinical Diagnostics for $4.15 billion.

Photo courtesy of Shutterstock