Why healthcare business leaders seek an IPO

George Moss, Partner at ECI Partners, the leading growth-focused mid-market private equity firm, on why healthcare business leaders seek an IPO

According to ECI PartnersGrowth Characteristics report, business leaders in the healthcare sector are more likely to seek an IPO than in any other sector, with 27% saying that becoming listed is the end goal for their business. 

The healthcare industry has been front and centre over the last two years, with this often translating into strong business performance. It has demonstrated the sector’s critical importance in society, which makes demand incredibly resilient, with businesses operating in this space more likely to be able to withstand market disruption and economic shocks. As a result, opportunities abound. 

How the COVID-19 pandemic shaped mergers & acquisitions in the healthcare sector

The crisis fundamentally changed the short and longer-term future of the healthcare landscape – impacting both the healthcare provider and life sciences industries. COVID-19 also exposed the economic and social consequences of inadequate pandemic preparedness, driving increased investment from governments and private companies to be better placed in case of any future such outbreaks. 

For example, the US Government called on countries and companies around the world to create a US$10bn global health fund to prepare for future pandemics and announced a US$250mn contribution from the United States to jumpstart the effort. 

The COVID-19 pandemic created direct strong interest in investment opportunities in life sciences, including those that directly were involved in detecting, containing, and treating viruses, and it has also resulted in healthcare systems and business models evolving. 

As well as short-term demand generation for companies directly involved with COVID-19, the pandemic also shifted long-term customer preferences, upset supply chains, and prompted new regulation, resulting in opportunities for new business models across services, technology, and staffing solutions.

Uncertainty surrounding the effects of COVID-19 on the healthcare system globally slammed the brakes on mergers and acquisitions in 2020, following a record year in 2019. However, in 2021, deal value rebounded, growing 44% to US$438bn, up from US$305bn the prior year. Strong interest in healthcare M&A resulted in high deal volumes in 2021, but also drove valuation multiples up to some of the highest levels seen for a decade.

Making leadership count in the healthcare industry

Strong leadership teams have been a vital part in ensuring healthcare businesses thrive as we emerge from the COVID-19 pandemic. Indeed, CEOs will continue to have ambitious growth plans. That said, leaders have had to evolve their business models rapidly in times of volatility and uncertainty. They have had to react quickly and efficiently with the knowledge that lives were depending on the decisions they were making – this placed huge pressure on leaders in the sector.

This may explain why ECI’s Growth Characteristics research showed that when it comes to length of tenure, a third of healthcare CEOs (33%) want to stay in their business for at least the next year, but no longer than five years.

Digital healthcare and IPO as an exit route

The IPO market was buoyant throughout 2021 across many sectors, but healthcare, including medtech and digital health, and biotech in particular saw a lot of activity with strong valuations. Healthcare companies raised a record-breaking US$56.36bn across 403 IPOs in 2021. This was a significant increase compared to pre-pandemic levels, where in 2019, there were only 183 healthcare IPOs.  

IPOs have become more interesting as an exit route for CEOs and shareholders of businesses over this period, as a result of:

  • Attractive IPO valuations for listed stocks in high growth sectors
  • Increased public market interest in the healthcare and life sciences sectors in particular
  • Access to large pools of further capital (albeit often also available in private equity)
  • Higher profile for a business, which can help with recruiting talent and with growth 

However, as a number of businesses have seen since going through an IPO in 2021, macro factors can have a significant impact on share prices and create volatility. For instance, biotech IPOs from 2021 were on average down c. 20% at the start of this year and have fallen further since. Significant share price declines can have unfortunate knock-on effects on the growth strategies a CEO might have for their business.

For business leaders considering an IPO in 2022, it’s important to weigh up the benefits and the potential impacts of such an exit and look to external advisers to support in these decisions to ensure that their growth ambitions can be maintained and weather any market disruptions on the horizon.


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