The healthcare sector has been busy this past decade. Private equity, corporates, and international investors have all been active – each responding to unique market drivers, regulatory challenges, and evolving public sentiment. Jason Sinclair looks at a resilient M&A sector.
The UK healthcare sector is one of the most diverse M&A markets in Europe, encompassing everything from care homes and clinical services to healthtech, pharma outsourcing, and specialist medical devices. It’s also one of the most resilient.
“The healthcare sector just relentlessly grows, through good conditions and bad, because it’s driven by people wanting to live healthily for longer,” says David Jolly, investment director at healthcare specialist Weight Partners Capital (WPC). Underpinned by demographic trends, technological innovation, and the enduring need for quality care, UK healthcare deals have increased, particularly as private equity consolidates investments.
‘With seven million on the waiting list, the public sector needs to access private capacity’
“Healthcare is a resilient sector – it is a necessity, not a luxury,” says Rad Patel, a director in Deloitte’s healthcare and life sciences team. “Since Covid, the burden on publicly funded health services has increased, and with seven million on the waiting list, the public sector can’t address this without accessing private capacity. This is driving rapid growth in the independent provision of health and wellbeing services such as diagnostics, occupational health, mental health, fertility and orthopaedics, and, in turn, investor interest in the sector.”
Added to this, she says, “we have a rapidly aging population, coupled with rising prevalence of chronic disease, which is fuelling demand for long-term care, speciality pharmaceuticals and medical devices.”
Patel, whose team of 15 specialises in mid-market healthcare and life sciences transactions between £50m and £300m enterprise value, says technology is “a transformative force in healthcare and life sciences today, with the potential to unlock unprecedented opportunities. It is enabling a shift from reactive to proactive and personalised healthcare. AI and machine learning are revolutionising drug discovery, allowing for faster identification of drug candidates and more targeted therapies.”
Meanwhile, telehealth, wearable devices and remote monitoring platforms collect vast amounts of real-world data. “All are fundamentally reshaping care delivery, enabling predictive analytics, early disease detection and personalised interventions,” she says. “Investors are keenly pursuing companies that are at the forefront of these innovations.”
Integrating tech
“Healthcare service providers have had to adapt their delivery models to create a more efficient, effective service offering,” Patel says, “that’s included a rapid adoption of technology to meet accelerated demand, deliver efficiency gains and improve patient care pathways and outcomes. “It’s that disruption and innovation that’s attracting investors back into healthcare services. Technology now is considered a hygiene factor rather than a differentiator. And, quite frankly, the services, patient outcomes and the care pathways have improved as a result.”
The potential multiples are certainly enough to pique private equity interest. With an increasing demand for occupational health services, US giant Warburg Pincus took a stake in Health Partners Group, valuing the B2B corporate care provider at a double-digit multiple. That shows an increasing appetite from international private equity to invest in health services in what Patel refers to as “a government-backed, resilient sector”.
She adds that inbound investment, particularly from the US, is “a significant and growing feature” of the European healthcare and life sciences M&A market. “It is very rarely opportunistic, it’s typically highly strategic. International buyers will target European companies that offer access to specific market niches, complementary technologies, or access to specific talent pools.” Astorg and Vitruvian were also rumoured to be interested in the Health Partners deal.
‘AI’s role in healthcare is something that people are putting some major bets on’
“From an M&A perspective, we are now seeing a lot of technology advancement in healthcare,” says Sylvester Oppong, head of healthcare M&A services at EY. “Digital healthcare has been a huge and fast-growing segment. AI’s role in healthcare is also something that people are putting some major bets on. But healthcare has been one of the slowest sectors to digitalise and adopt some of the innovative techniques that you see in other sectors.” This creates opportunity, says Oppong, who is seeing a trend of “transactions where private equity-backed corporates are looking at adjacent services and trying to find ways to add a much more comprehensive set of services.”
August Equity director Katie Ballardie, who invests primarily in healthcare software, describes the market as very competitive with very few scaled assets. “There are a lot of very small point solutions with maybe a couple of million of revenue that get to the stage where it’s very difficult for them to scale beyond that,” she says. “So, if there is anything that’s scaled above that level, it’s hotly contested.” In that fragmented scenario, there’s “big opportunity to bring together a lot of those smaller businesses”. Under August’s ownership, care management software company OneTouch has acquired three complementary companies, creating “an asset with a kind of scarcity value upon exit”.
‘We are seeing stronger propositions in healthcare than in the consumer sector’
Jim Weight, founder of WPC, describes the sector as stretching “all the way from deep biotech research to renting out hospital beds”. His firm began by investing in both consumer and healthcare, but their positions in consumer companies are being unwound. “We’ve struggled to find targets that give the kind of returns we’ve made historically in consumer, but we are seeing those type of propositions in healthcare.”
Social care
WPC targets the care home and mental health sub-sectors, as well as what Weight calls “the more predictable cash flow part of healthcare”, including the low-tech end of medical devices. “We’re definitely not interested in things with research risk,” he says. “I’ve been in this sector a long time, but none of us are clinicians, and I don’t feel comfortable betting on my cancer drug versus your cancer drug.”
‘Long-term, healthcare grows very steadily, but within that you see booms and busts’
“Like any sector,” says Weight’s colleague Jolly, “you tend to see booms and busts in healthcare – peaks of appetite, which then go off the boil a bit. Long-term, healthcare grows very steadily and is quite predictable, but within that, for a while, pharma services were really popular, and then came off a bit. Right now, specialist schools are very popular. Private equity tends to have a bit of a herd mentality.”
There is always going to be controversy in the UK when private equity brings for-profit models into the politically sacred NHS, but Weight says “people who operate in the industry, the vast majority of them, are not political people – they come into healthcare because they care.” Pointing out that the NHS employs almost two million people – nearly the same as the Chinese army – he says the size of the organisation makes it difficult to do “niche activities with top-down direction” and that the private sector can fill those gaps. Within that, he adds, “margins have to be high enough that private sector money will be attracted in to do the work and make investments, but shouldn’t be so high that we, as taxpayers, feel like we’re being ripped off.”
‘Private investment provides tools that can help the NHS scale and leverage its resources’
Ballardie believes there’s a strong argument for private investment in the NHS when it comes to the development of new technology: “There are so many small entrepreneurs who are developing solutions to support the NHS with specific challenges, and all of them are struggling – coming up against an NHS that is, frankly, unwieldy and difficult to contract with.”
She says private equity brings those businesses together, providing the capital, firepower and resource to take their solutions further and to the next level: “That scaling of investment for growth is beneficial, ultimately, for the NHS and for healthcare. It’s not trying to take things away – it’s trying to provide additional tools and investment externally that can help the NHS scale and leverage its resources.”
Drilling down
Clinical Services & Social Care
Includes private hospitals, care groups, mental health services, and NHS-outsourced providers. Typically characterised by predictable cash flows, high staff costs and recruitment difficulties.
Trends: Care homes remain attractive due to predictable cash flows and demographic tailwinds. However, reputational risk is high. PE firms are now more selective, often avoiding sub-sectors with high public scrutiny. Complex care presents opportunities for greater PE premiums.
Healthtech & Medtech
Rapidly growing, this area includes software solutions for care management, operational risk, diagnostics, and digital health platforms. The market is highly fragmented, with many small businesses ripe for consolidation.
Trends: The healthtech market is highly competitive, with private equity firms pursuing buy-and-build strategies, consolidating fragmented businesses to create platforms with scarcity value. The NHS’s complexity makes specialist knowledge essential. UK-based investors often have an edge, but US funds are increasingly sophisticated in navigating local dynamics. Nelson Advisers predicts the UK healthtech sector will reach £15.7bn this year, with a strong pipeline of deals in AI, analytics, and digital health.
Private investment, public service
It’s always been a contentious topic, says Deloitte’s Patel, which is why the private equity industry is quite selective about the sub-sectors it invests in.
“But they bring much needed capital into some of these businesses where publicly funded organisations just wouldn’t be able to afford or wouldn’t be willing to invest in. They bring operational expertise and efficiencies that can generate improved profits. It can lead to improved infrastructure and to the adoption of innovative new technologies, and more streamlined service delivery, all of which can benefit patients through increased access, better care, and ultimately better outcomes.
“I think that independent sector investment is accelerating the development and market entry of innovative medical devices and digital health solutions that may have struggled to arrive if they were entirely publicly funded.”
As the NHS evolves and the independent sector expands, M&A is set to play a pivotal role in shaping the future of UK healthcare. Success will depend on investing in innovation, and balancing a public service ethos with commercial returns.
“Private businesses are able to support the NHS in improving outcomes for individuals,” says Oppong, “and that will take the strain off the NHS more generally.”
Volume and value of global healthcare M&A
A specialist edge?
Permira, KKR and several other large and mid-market private equity houses now have specialist healthcare teams, says Deloitte’s Rad Patel. Archimed and GHO actually have specific healthcare funds. “Whilst generalist funds still participate, there’s an undeniable shift towards sector specialisation,” she says. “PE funds are looking to build deeper industry knowledge, operational expertise, and investment teams with an ability to identify and execute more complex deals.”
It would be difficult for someone who’s a generalist investor, who has the idea that healthcare is nice and stable, says WPC’s Jim Weight. A recent WPC report found that funds with a core healthcare focus deliver 1.6 percentage points of IRR outperformance and a 2.4 percentage point reduction in loss rate versus the UK private equity average.
“Specialist healthcare investors have a bit of an edge because of that understanding of the NHS,” says August’s Katie Ballardie. “A lot of US investors are seeing the UK market as a good starting point to get into Europe, because the NHS is a very good, stable platform.”
This is where advisory services can help, she says. “In commercial diligence in particular, and on the corporate finance side, advisers who really have a deep understanding of those markets – who spend their time talking to small businesses that maybe are a bit too early in their journey to be of interest to investors – can make introductions that are really helpful to us. And when we come to appoint advisers, we’ve got a really clear view of who knows those sub-sectors and spaces.”
