Private Equity Deal Trends in Health Care: Dividend Recaps, Add-Ons, and Continuation Vehicles
Private equity dealmaking in the health care sector continues to be characterized by dividend recaps, add-ons, and continuation vehicles, according to attendees at the DealMax conference. As the exit backlog for private equity firms grows, there is increasing anxiety about returning capital to limited partners.
While the first quarter of the year did not bring the M&A wave that many in the industry had hoped for, with only 136 deals announced, just four more than the previous quarter, industry experts are exploring alternative strategies to navigate the current market conditions.
Bob Dunn, managing director at consultant GF Data, expressed concern about the lack of exits in the past 12 to 18 months, noting that it may be challenging for limited partners to wait much longer. Charlie Gifford, senior partner at New Heritage Capital, highlighted the use of continuation funds as a potential solution to the exit dilemma.
Justin Abelow, managing director of Houlihan Lokey’s financial sponsors group, pointed out the increasing popularity of minority stake deals and fund-over-fund transfers in the current market environment.
Despite the challenges, there are signs of optimism in the lower middle market, with one director of business development noting that “the riches are in the niches.” Niche private equity funds have delivered impressive returns over the past decade, outperforming diversified funds of all sizes in North America.
Looking ahead, industry experts are keeping a close eye on the market for opportunities beyond the traditional A-plus assets. Justin Abelow emphasized the importance of exploring opportunities in the A- and B+ categories, which could offer better prospects for investors and help normalize the market.
Overall, private equity firms in the health care sector are adapting to the evolving market conditions by exploring innovative deal structures and seeking out niche opportunities for growth and returns.