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Why IRRs for healthcare are better than the rest, Permira leads $350m funding in Sysdig

2021 saw record-breaking healthcare deals.


Huh? Orlando Bravo, head of Thoma Bravo, made a statement on Twitter recently that liquidity is overrated, and investors should not be so desirous of getting out “at every instant” in managers (or companies) they have backed.

For a private equity manager, that feels like an anachronistic mindset — one in which a GP feels insulted that an LP would dare to have the desire to get out of one of the manager’s funds. This was the prevailing attitude toward secondaries among GPs for many years, which kept secondaries as a kind of private equity black market where only the most desperate LPs would go to trade out of terrible managers.

That’s not the case these days. Secondaries is a thriving and growing part of private equity investing that is opening the asset class to more investors by taking away some of the risk of illiquidity. This will become especially important as and when retail investors become a more routine part of private equity investing.

GPs like Thoma Bravo rely on the secondaries market in a few ways, primarily as an outlet for LPs who want to trade out of a fund, usually because they need to free up allocation space to commit to the manager’s next fund. This is being driven by the frantic pace of GPs bringing funds back to market, and creating new products, forcing LPs to triage their commitment schedules.

More recently, GPs are using secondaries as ways to extend their holds over certain portfolio companies where they see more room for growth. These deals, called GP-led secondaries, have come to dominate the market and are changing the nature of private equity’s traditional ownership structures.

Private equity is evolving, especially around its illiquid nature and rigid ownership structures. Secondaries, a major driver of these changes, will continue to grow and innovate as investors and GPs make use of its various tools.

Healthcare: If you’re not investing in healthcare, you’re missing out on the best returns in the private equity business, writes Larry Aragon on PE Hub.
The median IRR for healthcare deals done from 2010 to 2021 is 27.3 percent, according to a new report from DealEdge, a private equity benchmarking service from Bain & Company and Cepres. To put that into perspective, the median IRR for all PE deals done in that same period is 21.9 percent.

The IRRs are for partly and fully realized outcomes of more than 33,000 private equity deals done worldwide. DealEdge obtained the data from both GPs and LPs involved in the deals.

After healthcare, the deal category with the next-highest IRR was technology (24.3 percent), followed by media and telecom (23.8 percent), business services (22.4 percent), financial services (21.2 percent), industrials (20.5 percent), consumer (18.5 percent) and energy and natural resources (16.4 percent).

Significantly, healthcare outperformance has only improved with time. For the period 2000 to 2009, the median IRR for healthcare deals was 17.9 percent, compared to a median IRR of 15.8 percent for all PE deals during that same period, DealEdge reported.

The strong performance is a bit surprising given that more investors have jumped into healthcare deals, driving up multiples. However, the increased competition has not curbed investor appetites.

This year saw the largest healthcare deal on record – and one of the largest LBOs in history: Blackstone, Carlyle and Hellman & Friedman teamed up with GIC to buy a majority stake in healthcare products distributor Medline for an enterprise value of $34 billion.

Big healthcare deals continued late into the year. On Nov. 22, Bain Capital and Hellman & Friedman announced that they would buy Athenahealth, which offers enterprise software to healthcare providers, for $17 billion.

Read the full story here on PE Hub.

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