Private Equity Firms: Changing the Landscape of Indian Healthcare Sector

The fact is, as we are living longer with an aging population, there is a growing pervasiveness of chronic diseases due to lifestyle changes and pollution; and populations are getting wealthier and want to use their disposable incomes to get access to the best treatments.

So long as our bodies continue to survive sickness and fail, there will always be a need to continue innovating to find better solutions. Notwithstanding economic and regulatory pressures, there is an opportunity for the industry to continue furthering revenues through the discovery of new treatments or devices that physicians and patients find valuable. Encouraged by this logic and coupled with the low-interest rates and buoyant fundraising environment, private equity firms have been drawn to healthcare.

Particularly in periods of economic inequality, investors have turned to healthcare somewhat in the same way that they have turned to precious metals or defensive industries. If one looks at the performing funds in the past few years, the best performing specialist funds were those that exclusively invested in the biotech and healthcare sector.

Healthcare deal value surged in 2020, even with valuations reaching an all-time high, some believe that we will continue at this level of M&A activity in 2021 as well. One of the reasons for the high valuation is that competition has become crowded. Healthcare private equity funds now face competition not just from strategic buyers but also new categories of players that have entered the space; these include generalist private equity investors, pension funds, sovereign wealth funds, etc. There is still scope for further private equity to penetrate the healthcare market, particularly in India where healthcare has lagged behind some other sector groups.

The dynamics are changing, and we are finding that private equity is increasingly proving that it does have the sector understanding and confidence to outbid strategic players. Funds are taking a greater risk appetite to find broader ways of deploying capital, including assets that come with high exposure to reimbursement risk.