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PitchBook News - Healthcare crisis puts PE to the test

Plus: Nontraditional investors turn their backs on startups, the companies leading the US healthcare transition, big buyouts fade away & more
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The Weekend Pitch
July 16, 2023
Presented by Masterworks
(Julia Midkiff/PitchBook News)
It has been an eventful week for Britain's National Health Service, the socialized-medicine program marking its 75th birthday at perhaps its darkest hour.

On Thursday, around 46,000 doctors staged the latest in a series of walkouts over pay and working conditions, once again putting a spotlight on a service that is chronically understaffed and underfunded. The strike hit just days after another event, albeit less publicized, brought additional attention to the healthcare debate: Fremman Capital, a London-based private equity firm, acquired Medinet, an agency that seeks to tackle acute NHS staffing shortages by hiring NHS doctors and nurses outside their contracted hours.

The crisis, and the coinciding deal, together are revealing of both a health service that is struggling and the opportunities available to PE-backed healthcare companies that have become enmeshed in the nation's socialized medicine system in recent years.

While the inefficient health service is creating opportunities for private investors, the NHS crisis may heighten risk of backlash against PE involvement at a time when the public is demanding more accountability for a broken system.

This is the Weekend Pitch, and I'm Andrew Woodman. You can reach me at andrew.woodman@pitchbook.com or on Twitter @adwoodman.
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Trivia
How did PE exit value fare in the most recent quarter?

A) It increased
B) It decreased
C) It stayed the same

Find the answer at the bottom of The Weekend Pitch!
 

Tourists take flight from VC

(Luis Molinero/Shutterstock)
Nontraditional investors are reducing their exposure to startups: Their participation rate in VC has dropped about 10% in 2023 relative to 2021 on a deal value basis, the PitchBook-NVCA Venture Monitor shows.

These investors—hedge funds, PE firms, sovereign wealth funds and the like—were a major driver of outsized rounds in years past, and their retreat is palpable. Just 26 mega-rounds, or VC deals priced above $100 million, closed in Q2. Nearly half of those went to startups in the AI and machine learning or climate-tech verticals.
 

For now, big buyouts are out of vogue

As PE firms have held onto their portfolio companies for longer than usual, add-on deals have bloomed in popularity, with the small acquisitions making up nearly 80% of all buyouts. Growth equity deals, which don't require as much debt as LBOs, and corporate carveouts have also taken off this year.

Backing off from major buyouts in favor of easier-to-finance and flexible deal types is how PE firms have weathered the storm of high interest rates. Our Q2 2023 US PE Breakdown spells out the other ways the industry has adapted.
 

The companies driving the future of US healthcare

(Avigator Fortuner/Shutterstock)
As more of the US healthcare industry moves into value-based care—a patient-centered replacement for the fee-for-service model of paying for doctors—the enablement mechanism will be the most important thing to watch.

Our latest analyst note about value-based care profiles 11 companies focused on enablement, which includes financing, payer partnerships and risk strategies.
 

Quote/Unquote
"The regulators agree that private equity is not only a privilege for large institutions. I believe this is a game changer."

—Steffen Pauls, CEO of Moonfare, on the benefits of retail investors gaining access to private equity
 

Recommended Reads
Sam Altman's tangle of investments. [The Information]

How Houston oilman Jeffery Hildebrand confounded climate activists and made billions. [The Wall Street Journal]

Mattel wanted a summer blockbuster to kick off its new wave of brand-extension movies. 'Barbie' director Greta Gerwig wanted it to be a work of art. [The New York Times]
 

Stay tuned
Keep an eye out for these insights and research reports coming out this week:
  • Q2 2023 European Venture Report
  • Q2 2023 European PE Breakdown
  • Analyst Note: Floating Renewable Energy Technology
 

Trivia
Answer: A)

Exit value surged by 66.9% quarter-over-quarter, giving a boost to funds that are under pressure to wind down holdings. Read the latest US PE Breakdown to see how private equity is adapting.

This edition of The Weekend Pitch was written by Andrew Woodman, Emily Burleson and James Thorne. It was edited by Alec Davis and Laural Hobbes.

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