Coronavirus Impact on Healthcare Investing
As the World Health Organization officially declares a pandemic and global capital markets gyrate, it’s easy to imagine scenarios where healthcare investing grinds to a halt as financial professionals and industry experts recalibrate their expectations for growth in the sector. Without trivializing the risk to the public and the real financial impact of the recent coronavirus outbreak, it is MHT Partners’ perspective that the healthcare sector is positioned to weather the storm.
A significant portion of healthcare expenditures can be described as non-discretionary. Many groups can expect to see similar or increased patient volumes as people’s concerns about their wellbeing are heightened by the uncertainty created by the spread of the coronavirus. Specifically, groups within narrow networks, managed care organizations, lab and diagnostic businesses and products and services geared towards enhanced communication or collaboration could see a significant uptick in their businesses as the need for coordinated care becomes even more important in response to this public health crisis. Notably, this week the U.S. Senate approved an $8.3 billion bill targeting the coronavirus, thereby removing certain restrictions on how, when and where healthcare providers can use telehealth technology. Several of our clients with telehealth solutions in place have already been able to transition patients from in-person visits to online consultations. These capabilities are true differentiators; the return on investment for telehealth infrastructure is already “penciling out” in many cases.
More broadly speaking, we have observed that the markets for leveraged finance are functioning. PE groups and lenders will need to continue to collaborate to make sure that businesses have enough capital to continue to execute their plans – which includes M&A as a driver of growth. While things may be moving a bit more slowly, we also expect that the market rebalancing we’re experiencing will create more “buy” opportunities for groups that have been struggling to deploy capital at near historic valuation levels. With nearly $1 trillion in dry powder being held collectively by U.S.-based private equity and private credit funds, the need to deploy capital should help stoke demand despite the macro headwinds businesses are facing.
From a returns’ perspective, the healthcare sector presents a host of attractive opportunities. According to the widely cited annual “Global Healthcare Private Equity and Corporate M&A Report” published this week by Bain & Co., healthcare investments made during the last recession had a multiple on invested capital that was close to 50 percent higher than other industries (2.7x vs. 1.8x).
It will be some time before the dust settles, but from MHT’s perspective, healthcare remains a viable category for continued investing both in the near-term and long-term.