By Brun Zulfikarpasic, Research Analyst at King’s Private Equity Club
Over the past few decades, the healthcare industry has undergone rapid transformation due to technological advancements, regulatory changes, and evolving patient needs. Amidst these shifts, private equity has emerged as a key player in shaping the industry’s growth trajectory. According to Deloitte (2021), $15 billion have been invested in healthcare by PE firms in 2020, and their influence in driving innovation, facilitating mergers and acquisitions, and enhancing operational efficiencies.
As a sector, healthcare faces issues with expanding access to care, regulatory compliance, and operational efficiency. The private equity sector saw these factors as an opportunity to step in and help meet the high demands for healthcare services, products, and technologies. In 2020, the unprecedented pandemic surprised the world, creating immense demand for essential products such as masks and sanitizers. The majority of enterprises found it challenging to meet a sudden 1400% surge in demand (Rousell, 2020), highlighting the need for rapid adaptation and resource mobilization in the face of unforeseen crises. Additionally, the healthcare industry is characterized by high fragmentation, with numerous small and medium-sized enterprises operating across different sub-sectors. Many companies need more operational know-how and resources to scale their businesses effectively. PE firms, with their management expertise, have a unique opportunity to streamline operations and achieve economies of scale which will, in turn, benefit the end consumer by providing enhanced quality of care, greater accessibility to healthcare services, and potentially reducing overall costs of treatment and medical products.
Private equity firms have been instrumental in facilitating numerous M&A transactions and consolidating smaller healthcare entities. These activities promote the exchange of intellectual property and stimulate the development of innovative products and services. Prominent private equity firms like Shore Capital Partners emphasize nurturing innovation within their portfolio companies. By investing in research and development and assisting companies in navigating regulatory complexities, these firms drive the creation of ground-breaking healthcare technologies and solutions. Consequently, these innovations lead to improved patient outcomes. For instance, Innovia Medical, backed by private equity, developed the Cervical Rotating Biopsy Punch. This device enables biopsies to be taken from a hardened cervix, as reported by Med-Tech Innovation News in 2022.
Furthermore, PE firms are known for their expertise in improving operational efficiencies within the companies they invest in. They often implement cost-saving measures and optimize supply chains, leading to better patient care, reduced waiting times, and increased access to healthcare services. In 2006, KKR, along with Bain Capital and Merrill Lynch, acquired HCA Healthcare, one of the largest hospital operators in the United States, in a $33 billion leveraged buyout (Smith & Politi, 2006). Following the acquisition, KKR introduced advanced data analytics and best practices from other industries to help HCA Healthcare identify inefficiencies and implement targeted improvements. One significant improvement was the centralization of HCA’s supply chain management. By consolidating procurement, negotiating contracts with suppliers at the national level, and leveraging economies of scale, HCA Healthcare achieved significant cost savings. The company was also able to standardize clinical practices and equipment across its network of hospitals, further improving efficiency and patient care. These operational improvements enhanced HCA Healthcare’s financial performance and market position. The company eventually went public again in 2011, raising $3.79 billion in its IPO.
Private equity has emerged as a driving force in helping healthcare companies scale their operations, enabling them to reach more patients and expand into new markets. This can ultimately increase access to healthcare services and products, particularly for underserved populations or in times of unprecedented demand, such as during the COVID-19 pandemic. As the industry continues to evolve, private equity’s role in shaping the future of healthcare remains crucial, with the potential to deliver lasting benefits to healthcare providers and the end consumers who rely on their services.
- References
Med-Tech Innovation (2022) Innovia Medical to Showcase Single-Use Instrument Line at MEDICA, Med. Available at: https://www.med-technews.com/news/latest-medtech-news/innovia-medical-to-showcase-single-use-instrument-line-at-me/ (Accessed: April 2, 2023).
Micca, P. et al. (2021) Trends in Health Tech Investments, Deloitte Insights. Deloitte. Available at: https://www2.deloitte.com/us/en/insights/industry/health-care/health-tech-private-equity-venture-capital.html (Accessed: April 2, 2023).
Rousell, K. (2022) Covid-19 – the demand for hand Sanitiser and increasing production capacity by pigging, HPS Hygienic Pigging Systems. Available at: https://www.hps-pigging.com/covid-19-the-demand-for-hand-sanitiser-and-increasing-production-capacity-by-pigging/ (Accessed: April 3, 2023).
Smith, P. and Politi, J. (2006) KKR in record $33BN deal for HCA, Financial Times. Financial Times. Available at: https://www.ft.com/content/63845bbe-1aca-11db-848c-0000779e2340 (Accessed: April 2, 2023).
Brun Zulfikarpasic
King's Private Equity Club is a student society at King's College London, providing a high quality of networking, speakers, workshops and social events to the King's Community. Our goal is to improve our members understanding and employability.
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