Healthcare Business Trends

Paul Keckley: PE investing trends healthcare finance leaders need to watch

March 31, 2022 4:20 pm

Paul Keckley

Last year was a record year for private equity (PE) investing overall. Healthcare deals were a major target, behind technology and financial services. Notably, according to Pitchbook data, PE funds completed 8,624 deals, producing $1,237.5 billion market value in 2021, versus 5,709 deals and $689.6 billion market value in 2020.a While the healthcare industry focused on the pandemic, PE investing focused on opportunity.

Per PitchBook, the uptick in deal volume “was motivated by the availability of debt, the wave of sellers coming to market to avoid anticipated tax hikes, and the urge to deploy capital quickly in order to return to the fundraising market.” The majority of PE deals in 2020-21 were add-ons: Increased scale and stronger operating margins drove record valuations for deals in healthcare in 2021 and set the stage for post-pandemic healthcare investing in 2022 and beyond.

As healthcare finance professionals in traditional health settings focus on managing their organizations’ capital commitments and evaluating direct investments in private equity funds to enhance non-operating income, they should monitor two megatrends, involving “Big PE” and special-purpose acquisition companies (SPACs).

Big PE gets bigger and stronger

The 4th quarter of 2021 was record-breaking for the “Big 5” public PE firms — Blackstone (NYSE: BX), KKR (NYSE: KKR), Apollo Global Management (NYSE: APO), The Carlyle Group (NASDAQ: CG) and Ares Management (NYSE: ARES). They collectively recorded all-time highs for assets under management (AUM), fee-related earnings (FRE), fundraising, deployment, fund performance and more.

Their median internal rate of return (IRR) was 19.4%, top quartile hit 24.6% and median total value to paid in (TVPI) hit 1.60×. Most notably, cumulative AUM jumped $687 billion, and cumulative inflows amounted to $587 billion.b

Comparison of annualized returns

Time periodS&P HealthcareS&P 500Nasdaq Composite
1-year 17.39%























One-year returns for the Big 5 outperformed the overall market, and their price-to-earnings (P/E) ratios were relatively low, keeping fund-raising from their investors relatively attractive:  BX: +107.1%/27.6 P/E; KKR: +85.8%/16.6 P/E; APO: +53.2%/15.8 P/E; CG: +77.8%/10.9 P/E; and ARES: 77.8%/31.5 P/E 18.c Apollo, the year’s worst performer, still returned approximately 1.85 times the S&P 500’s return.

Last year was a good year for PE overall and especially good for the Big 5. Healthcare investing is a popular target for their deals: Although YTD 2022 healthcare stock prices are down 7%, healthcare stocks outperformed the S&P 500 and Nasdaq composite in 2021 and have sustained the long-term confidence of investors (see the exhibit below).

SPAC maturity and volatility are certain

SPACs have been around since the 1990s, but they saw exponential growth in 2020-21, signaling an over-heated equity market: According to some sources, 295 SPACs including 50 focused in healthcare — had record-breaking performance in that period, with 2021 proceeds from SPAC IPO issuances amounting to $162.5 billion.d

SPACs are usually structured with a two-year life. If the SPAC management team does not identify or close a deal with a target company within two years, the firm returns funds to its investors. A SPAC may overpay for a company to close a deal, or target businesses not “public company ready,” leading to increased stock volatility, SPAC investor redemptions or litigation in worst case scenarios.e

Results for SPACs are closely watched. Of the 91 business completions (successful SPAC mergers) since 2019, announcements of merger price changes have ranged between a low of –71% to as high as 187%.f Among healthcare SPACs, stock prices when announced increased 12.9% but dropped to –3.1% post deal closure, reflecting the operational complexity in healthcare investing. By comparison, in energy SPAC deals, stock prices increased 61.4% after announcement and dropped 0.7% after deal closure; in real estate, stock increased 29.0% and continued through deal closure (25.4%); and in technology, stocks increased 16.8% at announcement and even more (30.9%) after deal closure.

SPACs will play a bigger role in healthcare going forward: Some will successfully bring value to their shareholders, but many will fail, returning funds to their investors per SEC Section 419 rules.

Key takeaways for finance leaders

Private equity will play an increasing role in healthcare’s future — that’s for sure. Here are three recommendations for finance leaders on how to approach investing in PE.

1 Study your deals. Finance leaders should closely study the terms and conditions of PE agreements with the businesses they acquire. Traditional terms of and conditions are changing as PE funds modify the structure of their management fees and value-creation to align with shareholders and enhance incentives for their managers.

2 Protect your brand and fiduciary role. The role of PE in healthcare is increasingly under a microscope of regulators who are suspicious of profiteering in healthcare. The Center for Medicare and Medicaid Innovation’s replacement of its Direct Contracting alternative payment model with the ACO REACH program explicitly limits the influence of contracts that might limit access and equity for financial gains.

3 Be opportunistic. Finance leaders should take advantage of opportunities for direct investments in PE funds and be receptive to partnerships that augment the capital strategy for their organization. 


a. Fernyhough, W., Springer, R., Choi, J., and Villegas, A., U.S. PE breakdown: 2021 annual, PitchBook data, Inc., 2022.

b. Gabbert, J. Tarhumi, N., and Cox, D., “Analysis of public US PE firm earnings: Q4 2021 capping off a record-shattering year,” PitchBook, March 1, 2022.

c. Numbers provided by each firm’s investor relations.

d. See, for example, Bazerman, M.H., and Patel, P., “SPACs: What you need to know,” Harvard Business Review, August 2021; and SPAC Research (, 2022.

e. See Layne, R., Lenahan, B., “Special purpose acquisition companies: An introduction,” Harvard Law School Forum on Corporate Governance, July 6, 2018.

f. NYSE, “SPAC growth and sector trends,” Data Insights, Feb. 17, 2021.


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