Digital health continues to break funding records as companies across the globe raked in $30.7 billion in venture capital in 2021, according to data from Digital Health Business & Technology. Investments during the fourth quarter were $7.6 billion across 206 deals, a 6% drop from the recording-setting $8.1 billion raised by digital health companies during the previous quarter. But venture capital funding increased 68% year-over-year, as digital health companies raised just $4.5 billion in 139 deals during the fourth quarter of 2020. Here are the five digital health sectors that scooped up the most venture-capital funding in 2021.
It’s no secret that private equity (PE) firms have become a force in the healthcare industry, pouring record amounts of dry powder into areas ranging from outpatient care to information technology, pharmaceutical services, and real estate, among others. In a new report, PitchBook counts 733 PE deals in US healthcare services in 2021 for an aggregate deal value of $77.5B, both representing decade-long records, and likely all-time highs also. What’s clear from a recent report from Bain & Company is that the approach PE investors have taken with healthcare – both globally, and in Northern America – is paying off.
Cypress Ridge Capital, a U.S. growth equity firm focused exclusively on investments in the healthcare sector, today announced its formal launch. Cypress Ridge was co-founded by Andrew Pardo and Chris Petrini, who bring substantial experience investing in and working with privately held companies. The new firm will focus on companies across the healthcare ecosystem, including care delivery, technology and tech-enabled services, and the life science value chain. Prior to Cypress Ridge, Mr. Pardo served as a senior member of the healthcare investing team at Clayton Dubilier & Rice, a global private equity manager. Mr. Petrini most recently worked as a senior investment professional at healthcare-focused private equity firm WindRose Health Investors.
PE investments in healthcare continued to both expand and mature in 2021, as firms look to position themselves on the right side of change in an industry that accounted for nearly 20% of US GDP in 2020. The shock waves of the COVID-19 pandemic have both benefited and stymied growth in the healthcare sector. Some locations, especially hospitals and skilled nursing facilities, are still struggling with increased operating costs from COVID-19 safety precautions, lost revenue and staff churn. While other facilities, such as laboratories that pivoted to perform COVID-19 tests, unlocked a significant new revenue stream. Here’s a closer look at four charts from PitchBook’s latest US PE Breakdown that highlight PE’s healthcare activity in 2021.
Welsh Carson Anderson & Stowe is back on the fundraising trail with a goal of collecting at least $5 billion to invest in healthcare and technology companies, Connecticut Retirement Plans and Trust Funds documents show. The firm hasn’t set an upper limit for the latest fund, WCAS XIV LP, and expects to hold a first close later this month, according to public documents prepared for a Wednesday meeting of the pension overseer’s investment council. The firm expects to commit at least $200 million to the fund, the documents show. The firm plans to back up to 16 healthcare or technology companies through its 14th investment fund.
Twin Brook Capital Partners (“Twin Brook” or the “Firm”), the middle market direct lending subsidiary of Angelo Gordon, today announced that it committed $3.5 billion to private equity sponsors in support of healthcare transactions last year, completing 60 healthcare transactions across 33 subsectors. The Firm served as lead agent on nearly all the healthcare transactions it supported in 2021, which included 28 new platform financings and 32 add-on financings. An experienced lender in the space, Twin Brook has deployed over $6.5 billion across 169 middle market healthcare transactions since inception.
Private equity funding in healthcare has reached record highs, fueling growth across multiple sectors of the industry as regulators seek more information about their investments. PE firms’ primary target has been home health and outpatient care, with the number of related buyouts more than doubling from 2016 to 2020, according to a recent white paper. In addition to rolling up physician practices, private equity has also invested in the inpatient sector, pharmaceuticals and medical equipment.
KKR, a leading global investment firm, today announced the final closing of KKR Health Care Strategic Growth Fund II (“HCSG II” or the “Fund”), a $4.0 billion fund dedicated to health care growth equity investment opportunities primarily in North America and Europe. With a diversified portfolio approach, HCSG II will focus on the biopharmaceutical, medical device, health care services, life science tools / diagnostics, and health care information technology sub-sectors.
Venture investment in healthcare reached new heights in 2021, with more than $80 billion invested in biopharma, medical device, diagnostics/tools (dx/tools) and healthtech companies, according to Silicon Valley Bank’s annual Healthcare Investments and Exits Report. The more than 30% increase over 2020’s record is punctuated by a banner first half of the year.
In 2022, the after-effect of the pandemic and the economy will draw attention to health costs, affordability, equity and transparency in an election year. Though some policymakers and elected officials have voiced concern about the role of private equity in healthcare delivery, significant restraint on PE activity is unlikely. Mega-funds like Carlyle Group, Apollo, Blackstone, TPG and others who raised $138 billion in 2021 already of course have an unrivaled ability to scale their investments by way of their size; but can also absorb deep losses through diversification and can pivot quite quickly, if needed. More specialized and inherently smaller funds don’t necessarily have that luxury, but they have and still will find success in making bets where they have operational expertise, even if that means expanding their investment theses to include new provider specialties.
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