Healthcare investors expect the market to pick back up this year after a slow year for dealmaking in 2023.
The number of deals made in the healthcare industry in 2023 was “significantly lower” compared to prior years due to economic pressures like inflation and high costs of capital, according to a January 2024 report from management consulting firm Boston Consulting Group (BCG). But Bob Lavoie, a managing director and senior partner in BCG’s healthcare practice, told Healthcare Brew he’s “optimistic” about 2024.
“When you look at the overall landscape, I think that there continues to be a lot of general innovation in this space and a lot of excitement about what’s coming for 2024,” Lavoie said. “That’s a really good backdrop of fundamental demand.”
One reason for investor optimism is that the amount of money private equity firms have ready to invest hit a record high of $1 trillion in 2023, according to BCG’s report.
“I think private equity is feeling pressure to put money to work because otherwise they’re going to have to return money to shareholders,” Lavoie said.
At the end of 2023, the average holding period for a private equity firm—or the time between a firm buying a company and then selling it—hit a 20-year high of 7.1 years, according to BCG. That means there’s pressure on the firms to sell the businesses they’ve held for a while, according to Lavoie.
Plus, he said, uncertainty around inflation is lessening, and the gap between seller and buyer valuations is starting to close—both factors that could drive up investor confidence.
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Companies working on moving care from hospital settings to home settings—like remote patient monitoring companies—are likely to draw increased investor interest this year, per Lavoie.
He added that investors are also likely to gravitate toward companies working in the GLP-1 space as the market further develops and the drugs are used for things beyond diabetes and obesity, like cardiovascular care.
“There was a bit of an overreaction to GLP-1s by some investors,” he said. “But I think people are now starting to realize where [GLP-1s] might fit and how they see [the drugs] potentially starting to evolve.”
On the flip side, Lavoie doesn’t think it’s likely that diagnostics companies will draw quite as much investor interest in 2024 because there was so much deal activity in the space during the height of the Covid-19 pandemic.
Overall, there are still some uncertainties at play in 2024, like geopolitical tensions, inflation, and the upcoming presidential election, Lavoie said. But, according to the results of a BCG survey included in the January report, 65% of investors said they have an optimistic outlook for the next three years.
“That combination of the availability of assets, the reducing of uncertainty, and the desire to actually put money to work, I think, is going to drive a bit more transaction volume than we saw last year,” Lavoie projected. “I don’t think we’re going to return to the highs that we saw in 2021 and 2022, but I certainly think we’re gonna have a better year than 2023.”