Private equity: Healthcare’s new growth accelerator

Start adding items to your reading lists:
Save this item to:
This item has been saved to your reading list.

For years private equity firms have invested in healthcare, but now the pace is quickening as they step up their presence in a highly fragmented health industry, seizing on consolidation opportunities to build a better business model. Private equity’s acquisitions and investments in the health sector have become increasingly diversified and frequent; they include such things as new entrants in technology and convenient care delivery, clinical research organizations, and ophthalmology and dermatology practices. HRI expects this trend to accelerate in 2019, giving traditional healthcare companies opportunities to sell all or portions of noncore assets and double down on their core competencies, or partner with private equity in acquisitions in which they would otherwise be competing against each other or unable to act on their own.

A private equity sector bursting with cash and searching for deals means more of that money has flowed into the healthcare system over the past decade. In 2009, private equity firms completed over 200 healthcare deals, and by 2016 this had tripled to more than 600 deals.

The healthcare industry saw a high level of deals in general in 2017 and 2018, involving both private equity and corporate buyers. As those deals are completed, many may be looking to sell noncore business units, prime targets for private equity firms looking for a proven business model and solid cash flow.1,2 Private equity’s purchases of healthcare divestitures are expected to continue in 2019 as the sector looks to invest the cash it has raised, a reported $624 billion ready for investment across industries as of July 2018.3

Private equity firms are approaching corporate entities more frequently, hoping to persuade them that some assets can be better managed by specialist private equity firms, said Don McDonough, managing director of JLL Partners, in remarks at the September 2018 Mergermarket Healthcare M&A Forum.4 “More and more, PE firms are driving these types of carve-outs,” he said, according to Forbes.

Corporate healthcare buyers increasingly find themselves competing for deals with private equity firms that are more aggressive in the bid process, said Jonathan Piques, director of corporate development and strategy for Owens & Minor, a Richmond, Va.,-based healthcare logistics and medical supplies company, in an interview with HRI. “This presents an opportunity for corporate buyers to partner with private equity, spreading the risk of the transaction and increasing the number and types of deals that corporate buyers can pursue,” he said.

An example is the July 2018 deal involving TPG Capital; Welsh, Carson, Anderson & Stowe; and Humana to purchase Louisville, Kentucky-based Kindred Healthcare, a national healthcare services company that operates long-term acute care and post-acute care facilities. 5 The $4.1 billion deal complements Humana’s existing capabilities while capitalizing on private equity’s strengths to enable growth. 6

Partnerships between private equity and healthcare buyers also are evolving beyond acquisitions, with some healthcare companies spinning off noncore assets and co-investing with private equity in the new company. In September 2017, Pfizer and LifeArc, a medical research charity, partnered with Bain Capital and OrbiMed to create SpringWorks Therapeutics, an independent company that develops treatments for underserved patients.7 HRI expects to see more co-investing in 2019; it gives healthcare companies a chance to keep their portfolios diversified while mitigating some of the operational and financial risks that come with diversification.

Private equity’s increased role in deals isn’t unique to healthcare; rather, it reflects private equity’s increased investments across the economy, which is the result of increased debt financing and fundraising by private equity, both driven by low interest rates.8 As private equity firms seek to balance their investments in more volatile industries, such as technology, with investments in more stable industries that are less prone to a recession’s effects, the growing healthcare industry may appear even more attractive. CMS projects that national health spending will rise to 20 percent of the economy by 2026, up from 18 percent in 2016.9 That growth creates opportunity for private equity to grow its footprint in the industry; healthcare companies also should be seeking their own opportunities.


Recognize that the market is ripe for divestitures

Healthcare companies should consider selling noncore business units to private equity firms that have money to invest and may be more apt than a corporate buyer to purchase a single business unit. And as megadeals complete, newly consolidated entities should consider shedding noncore assets, with private equity as a potential buyer.

View more

Partner with private equity to unlock opportunities for growth and scale

Companies across the industry should consider where they might partner with private equity firms when pursuing growth or expansion efforts, as the private equity sector may provide strategic advantages beyond key additional financing. “Viewing private equity as a banker is shortsighted,” said Dawn Von Rohr, senior vice president of strategy for Albany, N.Y.-based AMRI, a global contract research and manufacturing organization purchased by The Carlyle Group and GTCR LLC in 2017. “Private equity can drive deals forward quickly. Once the deal has closed, they can provide a strategic view, understanding industry trends through their portfolio of investments and advising on growth opportunities.”

View more

Understand that private equity is accelerating change in the industry and eyeing disruptors

Private equity investment in healthcare isn’t going to single-handedly improve care quality, enhance the patient experience or reduce healthcare costs to consumers. But it likely is fueling the efforts already in place. Private equity firms bring capital and experience from other industries that can contribute to the healthcare industry’s efforts to rein in costs and achieve better outcomes. For example, in May 2014, Los Angeles-based private equity firm Varsity Healthcare Partners acquired Baltimore-based Katzen Eye Group to form EyeCare Services Partners Holdings LLC (ESP).10,11 ESP has since made multiple acquisitions and now provides practice management services to ophthalmologists and optometrists across 46 clinics in five states.12 On its website, ESP touts increased reimbursement and elimination of administrative burden as benefits of selling a practice to ESP.13

At the same time, private equity has its eyes on disruptors, monitoring their effects on investments and proposed deals. In rare cases, it invests in disruptors, as in The Carlyle Group’s investment in San Francisco-based 1Life Healthcare, the parent company of national, membership-based primary care practice One Medical. The investment was announced in August 2018.14

View more

1 PwC Deals, “Global Pharma & Life Sciences Deals Insights Q2 2018,” July 2018,

2 Forbes, “Tax Reform No Shot In Arm For Pharma Deals,” Sept. 25, 2018,

3 PwC Deals, “US Private Equity Deals insights Q2 2018,” July 2018,

4 Forbes, “Tax Reform No Shot In Arm For Pharma Deals,” Sept. 25, 2018,

5 Humana, “Humana, Together with TPG Capital and Welsh Carson, Anderson & Stowe, Announce Completion of the Acquisition of Kindred Healthcare, Inc.,” July 2, 2018,

6 Kindred Healthcare, “Kindred Healthcare to Be Acquired by TPG Capital, Welsh, Carson, Anderson & Stowe and Humana Inc. $9.00 Per Share in Cash,” Dec. 19, 2017,

7 SpringWorks Therapeutics, “SpringWorks Therapeutics Launches with $103M in Series A Funding and Rights to Four Clinical Programs,” Sept. 25, 2017,

8 PwC Deals, “US Private Equity Deals insights Q2 2018,”July 2018,

9 Centers for Medicare and Medicaid Services, “CMS Office of the Actuary releases 2017-2026 Projections of National Health Expenditures,” Feb. 14, 2018,

10 Varsity Healthcare Partners, “Varsity Healthcare Partners Acquire Katzen Eye Group,” May 12, 2014,

11 Harvest Partners, “Varsity Healthcare Partners and Harvest Partners Announce Recapitalization of EyeCare Services Partners,” May 22, 2017,  Note: ESP has since been sold by Varsity to New York City-based private equity firm Harvest Partners LP.

12 Eyecare Services Partners, “Brands,” accessed Sept. 23, 2018,

13 Eyecare Services Partners, “ESP Partnership,” accessed Sept. 26, 2018,

14 The Carlyle Group, “The Carlyle Group Invests in One Medical, the Largest Independently Held, Technology-Enabled Primary Care Practice in the U.S.,” Aug. 22, 2018,

Contact us

Benjamin Isgur

Health Research Institute Leader, PwC US

Kelly Barnes

Global and US Health Industries Leader, PwC US

Karen C. Young

US Pharmaceutical and Life Sciences Leader, PwC US

Gurpreet Singh

Health Services Leader, PwC US

Jeff Gitlin

US Health Industries Advisory Leader, PwC US

Kathleen Michael

US Health Industries Tax Leader, PwC US

Tim Weld

US Health Industries Assurance Leader, PwC US

Follow us