The European Healthcare Investor Association – in partnership with Rothschild & Co and BCG – held its First Edition of the Investors in Healthcare Private Capital Conference at Dartmouth House in London on 3 June
Some 220 healthcare investors joined us on the day across our two tracks of “healthcare services” and “life sciences and pharma” to share views and experiences in the healthcare, life sciences and pharmaceutical sector.
Macro outlook
The event began with a presentation looking at the healthcare M&A landscape, raising several talking points that would prove to be common themes for discussion throughout the day.
Despite the uncertain macro environment and investor sentiment, healthcare continues to offer resilient and attractive opportunities.
Inflation is likely to remain above target. Inflationary pressures have moderated from the jump in prices seen following Russia’s invasion of Ukraine, but they remain underpinned by resilient economic demand, elevated costs in commodity markets, tight labour conditions, and ongoing global trade uncertainties. They all might combine to contribute to near-term price spikes higher.
Inflation in the euro zone is expected to fluctuate within a 2–4% band.
Policy rates have moderated over the past year and there is potential for further cuts – particularly if tariffs suppress growth. Tariffs are a major concern post Liberation Day, and if they dampen growth, then there may be room to ease interest rates quicker and further than expected last year. Loser monetary conditions would benefit both bond markets, M&A activity, and valuations in healthcare.
Recession looks likely to be avoided in Europe – ceteris paribus – but growth is clearly being influenced by geopolitics, which has led to forecasts being revised downward as the impact of tariffs work through the system.
In the US, policy changes—particularly around drug pricing—will impact the welfare space, especially on the tech side.
Large pharma continues to adjust behaviour, particularly in response to Capex constraints and uncertainty over drug pricing policies. That has resulted in outsourcing decisions being re-evaluated, with global Capex reallocation now central to strategy.
Any shift in expectations on drug pricing has ripple effects for the whole supply chain.
European Healthcare Services sector
The impact of tariffs on European healthcare services is likely to be minimal, as businesses: are predominantly domestically driven; are supported by non-discretionary public spending; and benefit from relatively stable demand-supply dynamics.
People costs, however, which represent the majority of the cost base remain a concern, particularly in the UK.
Tariffs have the potential to change the cost of goods and services between Europe and the US, and that is prompting some major reactions in big pharma.
M&A and financing environment
M&A volumes, which have dropped since the high in 2021, remain below the five-year pre-Covid average. Healthcare M&A, as a proportion of total M&A, has remained consistent throughout.
Activity spiked during Covid, with healthcare and tech accounting for around 70% of all deals in one year, but since then, volumes have dropped off. While there was a slight recovery in late 2023 and early 2024, many sellers are once again waiting for better market conditions before pulling the tricker on deals. Evidence of the wait-and-see attitude comes from the unusually low number of assets currently on the market in European private equity – despite strong dry powder levels.
Interest in novel capital structures to extend hold periods, such as continuation vehicles or JV-style setups, is also growing.
Deals are still happening, however, but the dynamics differ across healthcare services, pharma, and pharma services in terms of valuations and opportunities should present themselves as pricing moderates.
There have been some recent major transactions in the pharmaceutical sector, and there should be more to come. Large-cap companies are gearing up for a busy Q3. Business will be driven by pipeline needs and decisions being made on the delayed activity from earlier in the year.
Debt markets
Leverage conditions in Q1 were the best since before the Ukraine war, with capital markets supporting some jumbo M&A deals.
Tariff announcements put an end to a record-breaking period in the leveraged capital markets, but the tension is already starting to ease again and several shelved transactions are beginning to reappear – albeit with margins some 25-50bp wider.
Private credit remains buoyant and is the primary choice for mid-market financing, as well as the key source of financing for sponsor-backed transactions. Credit funds have played a stabilizing role for the markets, providing capital available throughout April’s volatility. They continue to demonstrate resilience versus syndicated solutions during times of dislocation.
Biotech
Biotech financing sentiment remains weaker from the highs seen in 2021, but long-term trends are not as bad as they might seem, particularly in Europe where the region’s share of overall funding in the sector has been increasing since Covid.
Of note is venture capital becoming more concentrated. That trend is marked by bigger rounds going to fewer companies, which has the knock-on effect of shrinking the customer base for outsourced services. This has changed the commercial landscape for pharma services, especially for CROs.
Looking ahead, strong pent-up appetite for new therapies within large pharma should see M&A activity resume. Pharmaceutical companies are on the edge of a patent cliff, which will likely be a major driver of asset level M&A and inorganic growth.
Where to invest and how to exit
The outlook for Healthcare investors remains strong as it benefits from long-term positive trends across the whole value chain. The list of supportive factors includes: aging demographics, the rise in chronic illness, a shift to preventative healthcare, the expansion of personalised diagnostics, advances in medical technology, increased focus on mental health, urbanisation and lifestyle changes, digital health, demand for home therapy, and global healthcare tourism.
These themes create a range of potential investment strategies from cross-segment expansion to focused consolidation, while macro trends can drive opportunities in services, medtech, and pharma alike.
Trends, such as aging populations or digital health can be played multiple ways, so if investors are blocked from one strategy, such as through regulatory caps on provider roll-ups, it could be possible to switch strategies in pursuit of diagnostics or digital therapeutics instead.
Women’s health and fertility are also benefiting from strong underlying trends, which are presenting opportunities to play across the value chain. While ophthalmology, a large market with strong tailwinds, continues to see consolidation and there have been several exits recently within the value chain.
Flexibility is key.
Recent strong IPOs in healthcare are helping build confidence in public market exits again, and a healthy IPO pipeline remains in place. These exits set useful benchmarks for mid-market PE funds seeking liquidity routes.
For companies with >€250m Ebitda, IPOs are becoming the default, but many PE-owned assets do not meet that scale requirement, which might trigger merger strategies between similar-sized firms with the intention of creating IPO-ready platforms. It is a complex process, but necessity may drive cooperation.
A key development in healthcare services is the emergence of pan-European consolidators, and the presence of strategic buyers or PE-backed consolidators that can absorb mid-market assets is increasingly important.
Pharma services also remain attractive to PE, even with the regulatory complexity of operating in multiple markets, and the ability to scale remains compelling. The use of dual-track processes, creative exits, and cross-border M&A to maintain momentum is increasing.
Valuations in services have come down from Covid highs – the range is now broadly 10–12x Ebitda, although some growth assets still trade at 14–15x.
The market remains selective, however, and there’s a wide gap in valuations between top-quartile assets and the rest, which is affecting actual deal making. Most completed deals represent top-tier assets where buyer-seller alignment was achievable, but the real challenge lies in pricing second- or third-quartile assets. Several deals have failed or been shelved because seller’s price expectations are too high.
