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The Research Pitch |
July 29, 2023 
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H1 data and analysis: Earlier this month, we released our flagship reports on US VC and PE, covering all the key trends from the first half of the year. Get them here: PitchBook-NVCA Venture Monitor, US PE Breakdown.
Top reads: In case you missed them, here were our most popular research releases since the start of last month:
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Why M&A volume and value are diverging—and prices aren't in sync with public markets
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This week, we published our take on the global M&A market at the halfway mark of the year. A few key findings:
- Purchase price multiples are in full correction mode. We are now down roughly 20% from the 2021 peak (-24% based on revenue multiples, -16% using EBITDA multiples).
- Acquirers are marking time until headwinds fade with plenty of deals getting announced, just smaller. Call it a stalemate between near-record corporate/PE dry powder and stubbornly high interest rates.
- The result: deal value is down 33.7% YTD but deal count is mostly unchanged as small deals get done.
- PE is no longer quite so dominant as a driver of M&A growth. After 10 consecutive years of growth, PE's share of M&A deal count has been trending down for the first time, peaking in 2021.
The decline in prices paid for M&A targets might come as a surprise for those watching the strong rally in public markets, where multiples are back to nosebleed levels (3.3x revenue based on the S&P 500). But the M&A market is notoriously slow to catch up to the whipsaw action of public markets, both on the way up and down.
While trading multiples have rebounded, deal multiples continue to slide. In fact, we are all the way back to the 100%+ premiums that ushered in the take-public wave of 2020-2021.
At some point, this gap between cheap private markets (90% of all M&A are private deals) and rich public markets should force a slow re-opening of the IPO window, but for now, investors are still healing from the wounds inflicted by the last listing cycle.
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| M&A prices often lag behind public market ups and downs. |
As for the M&A market itself, deal value drifted lower in Q2 even while the number of announced or completed deals flirted with near-record highs. Deal value fell to $873.4 billion in Q2, down 33.7% on the year.
This divergence between dollar volume and deal count is the byproduct of two powerful and conflicting forces: significantly higher interest rates and the massive cash piles that remain for corporations and financial sponsors.
PE dry powder stands at $1.35 trillion, just 9.7% shy of its all-time high. An even larger cash pile is on the books of corporations. In the US, cash holdings have reportedly surpassed $5.8 trillion inclusive of reserves held overseas.
While only a portion of this is earmarked for strategic investments and acquisitions, untapped borrowing capacity and stock value easily compensate for the rest.
This tug-of-war between near-record dry powder, pushing acquirers to spend, and tight credit conditions holding them back has resulted in the stalemate we are now seeing consisting of high-frequency dealmaking at smaller sizes and lower aggregate deal value.
Many expect M&A conditions and deal flow to improve next year. Goldman Sachs, the world's largest M&A advisor, recently reported an increase in its investment banking backlog for the first time in more than a year.
While this includes other business lines, they tend to cycle together as these activities open the liquidity floodgates. Add to this the unspent cash piles on the books of corporates and financial sponsors, and you have the pre-conditions for a strong M&A rebound in 2024.
For more data and analysis, read our Global M&A Report.
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Enjoy the read!
Tim Clarke
Lead Analyst, Private Equity |
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Our value-based care crystal ball
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Value-based care is healthcare that focuses on improving holistic patient outcomes across a population while controlling costs.
More precisely, it involves alternative reimbursement models that reward healthcare providers for keeping patients healthy through holistic and preventative care—in contrast to traditional, fee-for-service reimbursement, which rewards providers simply for providing a higher volume of care.
In our recent research, we've addressed three common questions about the future of value-based care and the role of private capital:
1. Will the US healthcare system ever fully transition to value?
Our short answer: No.
Our long answer: It depends on what you mean by "fully."
CMS—the Centers for Medicare and Medicaid Services, the nation's largest health insurer and driving force behind the industry's shift to value—intends for all Medicare and most Medicaid beneficiaries to be value-based arrangements by 2030. Commercial (employer-sponsored) plans will transition to accountable care much more slowly, but employers, with the assistance of care navigators, will drive their own transition toward value as they work to control costs while improving employee welfare and productivity.
But there are other corners of the health system that are unlikely to participate substantially in value-based care, including on-demand care providers, which trade ease of access for longitudinal patient-provider relationships; high-margin, hospital-based specialties, such as radiation oncology and neurology; and providers at the intersection of aesthetics and medicine, such as orthodontists, plastic surgeons, and medspas.
Then there is the pharmacy benefit. Although a few companies, such as bluebird bio, are piloting value-based pricing agreements for high-cost therapies, widespread value-based prescribing is a distant proposition.
2. Why is the transition taking so long?
Even for a provider fully committed to pursuing value-based care, the hurdles are immense. Health systems, many of them stretched to near-breaking by the COVID-19 pandemic and its aftermath, must make enormous up-front investments in organizational change and technology infrastructure to successfully move into value.
On the payer (insurance) side, value-based contracts are highly complex and often bespoke, and payers are often reticent to embrace novel approaches. This is one reason why we think the enablement model will be key for advancing VBC in the coming years.
Add to this the fact that our clinical understanding of how to consistently improve patient outcomes remains limited in some areas, such as oncology; in other areas, such as mental health, care pathways are better defined, but acute provider shortages restrict access to care. Merely aligning incentives cannot solve these problems; research, technological innovation, and policy action are required to move the needle on care quality.
3. Is value-based care still worth investing in?
Yes—though we caution against the buzzword effect.
Many industry actors claim to advance value-based care but come up short in their care delivery model, payer relationships, or financial sustainability. We believe the key questions to ask of a value-based care play are:
Does this company materially improve patient outcomes while reducing total cost of care? Does it do so without increasing the burden on providers, and can the company bring providers into its vision to ensure their alignment and participation? Are early results replicable in subsequent cohorts, different payer relationships, and new geographical markets? Are payment mechanisms in place to capture enough of those savings to sustain the company's operations and growth?
The VBC transition will continue because the fee-for-service reimbursement model is unsustainable at a macroeconomic level and fundamentally at odds with the values that draw most healthcare professionals to the industry.
Moreover, technological progress has reached a tipping point: Cloud-based EHRs, predictive analytics, and improved interoperability are finally beginning to make driving and measuring value achievable. Given the challenges that remain, we believe private capital has an important role to play in the US healthcare system's transition to value.
For more data and analysis, read our VBC research:
Value-Based Care: An Investor's Guide
Anatomy of a Population Health Program
The Value-Based Care Enabler Landscape
Feel free to email me to discuss any of the above or join my distribution list for healthcare private markets research.
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Best,
Rebecca Springer, PhD
Lead Analyst, Healthcare
Email | LinkedIn |
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Food as Medicine: An Overhyped Concept or the Next Frontier?
How to best manage chronic health conditions has vexed doctors and patients for generations.
One overlooked area of treatment is increasingly attracting more attention: healthy, medically tailored meals and personalized nutrition programs.
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| Click to access a larger version of the market map. |
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US households that include a member with a health condition that can be managed through diet spend around $270 billion in grocery sales annually.
Indeed, investors are finally taking food-as-medicine startups seriously, according to our latest research: |
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Floating Wind and Solar Energy
Offshore floating wind projects cost 176% more than traditional wind farms to operate—so why would anyone bother investing in them?
Stronger and more stable wind, less land use, and a burgeoning market are just a few of the reasons.
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| Global interest in floating wind tech is growing. |
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Historically the domain of utility giants and oil & gas companies, offshore energy production is picking up steam among solar and wind cohorts.
Still, challenges abound for the new technologies: |
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How do North American perspectives on ESG and impact investing differ from those in Europe?
How can investors address the challenges of measuring and benchmarking sustainable investing outcomes?
We hosted a live discussion this week about the investor views featured in our Sustainable Investment Survey. If you missed it, you can watch the free replay.
- August 9: The US venture ecosystem remained under stress in Q2, as dealmaking slowed, pressure persisted on fundraising, and the IPO window stayed firmly shut. Our expert panel will dive into key findings from the latest PitchBook-NVCA Venture Monitor. Register here.
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Senior analyst Brendan Burke weighs in on OneTrust's $150 million round at a $4.5 billion valuation, down from a $5.5 billion valuation achieved two years ago:
"OneTrust has scaled to become the largest vendor in data privacy & compliance, a market we expect to reach $1 billion in vendor revenue in 2023.
"The company's growth has begun to slow, with the company losing market share in 2022 amid strategic realignment and challenges from early-stage vendors.
"OneTrust's sensitive data mapping technology for regulatory compliance use cases has not been able to benefit from the mega-trend toward data security posture management in infosec, which benefits startups that can detect data repositories across customer IT estates.
"2021's VC valuations have not held up for infosec unicorns, with debt rounds and down rounds becoming the primary means of fundraising for category leaders."
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Brendan Burke
Senior Emerging Technology Analyst
Information Security |
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Our insights and data featured in the press:
- Blackstone has reached $1 trillion in AUM. "They've been talking about it a while, but it's like landing on the moon: It's still an incredible achievement." [Fortune]
- In the US, there were 471 M&A deals involving venture-backed startups announced in the first half of the year, compared with 785 deals over the same period a year ago. [WSJ Pro]
- "We expect consolidation will continue to pick up this year, especially in consumer fintech sectors like neobanking." [Tech.eu]
- The mood in the European private equity market is changing. [Handelsblatt]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. |
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Highlights from our other recent research:
Market updates
Thematic research
Industry & tech research
Coming next week (subject to change)
- Global Fund Performance Report
- Global Markets Snapshot: July
- Methodology for PitchBook Performance Scores
- Manager Performance Score League Tables
- Information Security Report*
- Takeaways from July E-Commerce Deals
- Private Capital in European Football
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Since yesterday, the PitchBook Platform added:
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10
VC valuations
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1907
People
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697
Companies
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27
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