SVB banker weighs in on healthcare valuations; BC Partners factors in higher cost of debt

PE Hub talks to healthcare PE investors.

Good morning, Hubsters. MK Flynn here with today’s Wire.

Let’s kick things off with a look at deal pricing in the healthcare sector.

Meeting of the minds. As our regular readers know, PE Hub’s Aaron Weitzman has been talking with many private equity investors in healthcare over the last several months. This week, we’re featuring Aaron’s interview with an healthcare banker who shared insights on valuations in the sector.

“When you combine what you would consider a valuation on the frothier side for private companies that have raised private rounds over the last couple of years and you look at valuations of public comps coming down, it’s a difficult meeting of the minds between acquirer and target,” said Jonathan Norris, managing director for business development in Silicon Valley Bank’s healthcare practice. “We’ve seen significantly less M&A activity this year.”

Norris continued: “For the deals that we did see, while the exit value might seem large, if you peel back the onion for the later-stage investors in these rounds, the multiple is between 1x to 2x, which is not typically what they’re expecting. It was not that big of a step up from where they were valued at the last private financing. I think that’s what’s available right now. For the early-stage investors, which can still be a good investment, they can still get good returns, because they’re in at a much lower valuation. They are getting exits but maybe not as big a multiple as they were hoping. However, we are starting to see some more private/private M&A activity happening, especially in health tech, with a little momentum there.”

For more analysis of PE deals in the healthcare sector, check out Aaron’s recent profiles of PE firms investing in the sector.

Read Aaron’s take on Court Square Capital Partners and his conversation with managing partner David Nguyen here.

See Aaron’s profile of EQT Partners healthcare investing and his conversation with Eric Liu, partner, head of North American private equity and global co-head of healthcare, here.

High cost of debt. How are rising interest rates the world over affecting PE-backed deals?

That’s a question all of us at PE Hub are asking our sources these days.

PE Hub Europe editor Craig McGlashan gleaned some insights on the topic when he spoke with Stefano Ferraresi, partner, head of the industrial sector in Europe and the Italian market, for BC Partners. The London PE firm announced last week its joint ownership, along with Bain Capital Private Equity, of Milan-based luxury goods packager Fedrigoni.

With a reported value between $2.8 billion and $3 billion, the deal was an opportunity to take a stake in a defensive asset amid a worsening global economic outlook. It also showcased some of the adjustments dealmakers are having to make to get business done with rising rates, Craig points out.

“We had to adjust the capital structure of the deal to take into account the more difficult environment,” said Ferraresi. “To put together the best possible financing and capital structure for the deal at this stage would have been difficult if it was just a straight sale. Being able to cooperate with Bain Capital meant we were able to put together something we are happy with. We did have to factor in a higher cost of debt than we would have had a year ago.”

Read the full story here.

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That’ll do it for today. I’ll see you tomorrow – same bat time, same bat channel.

All the best,

MK