3 Healthcare Sectors On Every Investor’s Watchlist

healthcare investment

With so much competition to acquire quality assets in healthcare, private equity investors must cast a wide net, exploring a diversity of growth-phase businesses. There are some gems to behold as well as a number of legacy owners looking for exit strategies, but investors need to act fast.

In spite of all this competition, many have become slightly more cautious on multiples of late. Potential targets at the very least must have a sustainable forecast positioned against the backdrop of the remaining uncertainties of today’s pandemic era.  Whether investors are paying inflated prices or they are wise to work within the seller’s asking price remains to be seen. One thing’s for sure: In healthcare, it’s a seller’s market.

Here are three healthcare sectors private equity firms should be watching.

1. In-home medical care

By 2040, about one in five Americans will be age 65 or older, up from about one in eight in 2000, according to data from the U.S. Census Bureau. In addition, approximately 85 percent of older adults have at least one chronic health condition, and 60 percent have at least two chronic conditions.

That growing demographic represents a population ripe for in-home medical care. To be clear, the market for any type of in-home, health-related service is booming, but the serious potential comes from reimbursable medical services, such as remote patient monitoring (RPM), managing recent hospital discharge patients, and care for chronic conditions like diabetes.

The value of in-home care lies in the fact that it can prevent — or in some cases supplant — utilization of costly hospital care, including readmissions. And many consumers prefer care at home, making this segment of the market especially attractive for investors who want to differentiate their portfolios through consumer-centric offerings.

Undoubtedly, the pandemic has led to an even clearer consumer preference for receiving medical care at home. A PwC survey found that more than three-quarters of consumers are willing to receive in-home care for services ranging from a well visit to chronic disease management. In addition, the increasing availability and acceptability of technologies such as telehealth and plug-and-play RPM devices are quickly enabling the growth of this sector.

Estimates forecast the broader home-care industry’s global worth will reach $454 billion by 2026 with CAGR of 7 percent. This growth can be attributed to cost-efficiency, improved patient outcomes and convenience.

The federal government is also considering much broader investments in the home medical care segment. In August, for example, the Senate passed a budget blueprint, part of which would potentially boost the pay of homecare workers and provide billions of dollars for home- and community-based services.

Combined, the tailwinds of the growing population, consumer preferences, enabling technology, and favorable legislation make in-home medical care an attractive segment. Businesses that can prove their offerings produce better outcomes at a lower cost will have the competitive advantage.

2. Women’s digital health

While much of the attention in women’s digital health has been focused on funding start-ups, it’s not the only reason investors have become attracted to this segment as of late. According to one report, the global women’s digital health market is expected to grow 19 percent from 2021 to 2028.

Women make the vast majority of healthcare decisions for their families, while also spending more per-capita on healthcare than men, particularly during reproductive years. Currently, the market is witnessing a rising adoption of mobile apps for the management of menstrual cycles, fertility cycles, and pregnancy, indicating an appetite for digital health exclusive to women. Fertility apps alone now chart hundreds of millions of users.

As more healthcare stakeholders focus on the comparatively poor maternal health outcomes in the United States — dead last among industrialized countries — consumer-facing tools will become more ubiquitous. Particular attention is needed for women of color who experience maternal death rates at two to three times that of white women.

Women’s health is a segment that has been largely ignored with significant room to grow from a niche to a mass market with service lines for every age group. Unfortunately, ownership might skew the outlook for some acquisition targets: Female-owned or -operated businesses historically have had a harder time acquiring capital and assuring investors of a sizeable exit. Nonetheless, with its untapped growth potential, women’s digital health is one to watch.

3. Behavioral health

Pandemic-related anxieties and the high demand for services is worsening the shortage of mental health providers, which far predates the pandemic. Telehealth has offered some relief, but access is only part of the equation.

Behavioral health conditions represent a tremendous financial strain on the healthcare system. A recent study by Milliman found that 57 percent of patients who were in the so-called “high-cost group” — a population that represented the top 10 percent of overall healthcare spending — had a mental health or substance use disorder diagnosis and accounted for steep annual costs averaging $45,782.

With cost as the inspiration for many of the new healthcare models and solutions offered up in recent months, future winners in the market must address the confluence of behavioral and physical health with scalpel-like precision.

Tailwinds in the behavioral health segment include: high demand, reduced stigma around seeking services, employer interest in getting a handle on worker mental health, greater availability of telehealth, and value-based care arrangements that allow more flexibility to address whole-person health. There’s even a recent unicorn in behavioral health, indicating the attractive potential of this segment.

Healthcare acquisition targets have become deeply nuanced with incredible potential. Don’t miss an opportunity. Canton & Company can help you identify growth-stage businesses and craft a winning value-creation strategy. Contact us today!