Published today, Bain & Company's 12th annual Global Healthcare Private Equity and M&A report reflects the continued resilience of the healthcare industry, with 2022 seeing near-record levels of healthcare dealmaking, in terms of both volume and value.

Despite a slowdown caused by macro-economic and geopolitical forces in the second half of the year, 2022 was still the second-best year on record for healthcare dealmaking, due in large part to the white-hot pace of investment at the start of the year. Total disclosed deal value reached nearly $90 billion, down from $151 billion in 2021 but still more than $10 billion more than the next-closest year. Bain's new report shows that ample dry powder and a track record of returns will continues to attract healthcare-specific funds in 2023.

"Healthcare private equity has earned a recession-proof reputation, typically outperforming overall private equity activity during economic downturns," said Kara Murphy, co-lead of Healthcare Private Equity at Bain & Company. "While the space is resilient, investors will face continued challenges ahead as interest rates and labor costs continue to climb, and credit continues to be tight. As our clients invest to deliver better healthcare, they will need to differentially focus on value creation planning in diligence and post-close."

Looking ahead to 2023, funds are tapping into new sources of capital, looking to carve-outs and public-to-private deals, and looking to sub-sectors that may perform differentially well in the current market environment.

"Change is coming as 2023 unfolds," said Nirad Jain, co-lead of Healthcare Private Equity at Bain & Company. "Investors who have previously weathered down cycles have specialized playbooks for these times, to which they will adapt their usual approach. This includes playing to long-term trends and getting creative to close deals amid capital and inflationary restraints."

Sectors to watch in 2023

• Biopharma and life sciences remain attractive. Six of the top 10 deals last year were in biopharma, life science tools, and related services. Within these subsectors, more than 600 healthcare buyout deals have been executed over the past five years globally. In 2023, the bar is high to win the right deals as competition for these assets holds strong and valuations have run up, even within the current macro context. Investors here need to clearly define their strategy, crystalizing where a fund will choose to play and what gives that fund a right to win in the face of a potential downturn and beyond.

• Opportunities to expand around value-based care. Sustained macro trends continue to drive value-based care adoption across a spectrum of care models. While investment activity remains focused on primary care and Medicare Advantage, opportunities across other payer and specialty segments are expanding. Enabler models represent an attractive investment path, with adoption driven by a need for traditionally fee-for-service groups to participate in risk-based arrangements. Providers and value-based care enablers that can bend the cost curve with differentiated care models and advanced analytics are positioned to succeed. This is likely to accelerate as regulation increases, data from early adopters is seen, and more capability-enhancing technology floods the market. Bain's analysis suggests fee-for-value arrangements will capture 15%–20% market share from traditional FFS providers in primary care by 2030, supporting further investment in the space.

• Adapting to AI breakthroughs. 2022 was a monumental year for generative artificial intelligence (AI), with new services emerging in imaging and text generation. AI is already accelerating therapeutic discovery, optimizing supply chains, and automating payer and provider back offices. Use cases for generative AI are just emerging. Stakeholders are watching closely and are ready to adapt when the time is right. 

• Healthcare IT continues to grow. Despite healthcare historically underspending on technology, in 2022, healthcare IT (HCIT) buyout volume added up to be the second highest on record. With provider IT continuing to be the main driver, biopharma IT and payer IT are catching up. Within biopharma IT, we see interest in businesses that use technology to support workflow productivity and reduce clinical trial length. Payer IT deals reflect continued interest in technology focused on payer administrative functions.

Regional performance: growing signs of strength and maturity in APAC

Total disclosed deal value in Asia Pacific maintained 2021's record pace. Provider sector activity remained resilient, thanks in part to the burgeoning deal market in India, which accounted for 4 of the 10 top deals within the region. Despite slowdown of activity in China, large deals in Japan, India, South Korea, and Australia accounted for most of the Asia-Pacific deal activity. Unlike North America and Europe, Asia-Pacific was punctuated by a strong second half with six deals at a disclosed value of $1 billion or greater. This strong regional activity is a testament to these markets' coming of age, with geographical breadth, opportunities across sectors, and check sizes continuing to grow. Looking ahead, we expect investor interest in Asia-Pacific healthcare private equity to stay strong as an emerging pool of investable assets will continue to draw interest from large funds.

North America stayed on top of other regions in 2022 in terms of total deal count and disclosed value. While deal volumes fell nearly 25% from the historic levels seen in 2021, 2022 deal volumes still represent the second-best year on record. In Europe, deal counts fell by about 20% to 92 in 2022, also making 2022 the second-best year on record for the region.