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.

Exclusive Interview with FCA Chief Executive Nikhil Rathi: Private Equity Risks and Regulatory Stance

In a recent interview, Nikhil Rathi, the chief executive of Britain’s Financial Conduct Authority, expressed his skepticism about the systemic risk posed by private equity groups. This stance puts him at odds with the Bank of England, which recently issued warnings about the risks associated with the $8tn industry. Rathi emphasized the importance of transparency and data sharing from the private equity industry to better understand and assess the risks involved.

Rathi, who also sits on the BoE’s financial policy committee, highlighted the need for evidence-based decision-making rather than implementing regulatory measures without sufficient data. The committee’s recent report raised concerns about private equity’s leverage, transparency, and valuations, but Rathi cautioned against overregulation without solid evidence.

In other news, UK banks saw a significant increase in interest earned on their Bank of England reserves, with the largest high street lenders earning over £9bn last year. Economic data releases from the OECD and S&P Global, as well as meetings between French President Emmanuel Macron and Japanese Prime Minister Fumio Kishida, are also on the agenda for today.

Additionally, the UK local elections taking place today will determine Prime Minister Rishi Sunak’s political fate, with contests for council seats and mayoralties across England and Wales. Results from companies like Apple, Shell, and Standard Chartered are also expected.

In international news, the US military is nearing completion of a floating pier off Gaza to facilitate humanitarian aid delivery, while ceasefire talks between Israel and Hamas are ongoing. Shareholders in Shell are pushing for greater climate action, and Uber is facing a lawsuit from London’s black-cab drivers.

Overall, a mix of financial, political, and international developments are shaping the news landscape today, with key events and decisions impacting various sectors and regions. Stay informed with the latest updates delivered directly to your inbox.