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PE/VC investment into healthcare grows to $3.01 billion in first half of 2021
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Gireesh Babu, New Delhi
August 24 , 2021
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Private equity (PE), venture capital (VC) investments into the healthcare industry during the first half of the year 2021 has seen a jump to $3.01 billion, as compared to $1.72 billion in the same period of the previous year. Experts say that while the growth momentum for PE/VC deals continue to grow from last year, in the backdrop of the Covid-19 pandemic and the lockdown, the valuations are a bit stretched now.
According to data from venture intelligence, a leading source of data and analysis on private company financials, transactions and their valuations in the country, the investment into the healthcare industry in the whole year of 2020 was $3.07 billion. This would mean that the industry, in the first six months of the year, from January to June, has mopped up close to what it has raised in the 12 months last year.
“Several venture capital funds saw a massive correction in valuations around the world and they put a lot of money to work from April, last year, when the lockdown was implemented. Pharma was one of the big beneficiaries of that cycle. In API particularly, India has started to build big platform assets,” said Sujay Shetty, global health industries advisory leader, partner, PwC India.
India, being the generic drug manufacturer and vaccines has attracted more investments, with its export potential and the pandemic boosted the income of generic pharma. Last year a lot of money went into the sector and it continues to go this year also.
Venture Intelligence data shows that the investments in the first half of 2021 were led by the Zydus AHL deal in May, 2021, for an amount of $398 million invested by CPPIB, multiples PE and others, followed by the PharmEasy deal for $350 million from Think Investments, Prosus Ventures and others in April and Goldman Sachs investing $329 million in Aragon Life Sciences in May.
The other two in the top five deals during the six months of 2021 are Manipal Health Enterprises raising $283 million from NIIF in March, 2021, and ZCL Chemicals raising $275 million from Advent International in the API sector, in February, 2021.
Pharma and API products saw 12 deals in the first half of 2021, with a total investment of $1.49 billion attracted, compared to $960 million in nine deals in the same period last year.
E-Pharmacy had seen seven investments totalling $563 million compared to three deals worth $71 million during the same period last year. Hospitals and clinics attracted nine deals worth $533 million as against six deals worth $223 million between January and June, last year.
Health tech saw the second highest number of investments, with 10 investments totalling $108 million during the six months, compared to nine deals worth $140 million in the same period last year. Healthcare business-to-business software including software as a service has seen six deals worth $156 million, compared to eight deals worth $102 million in the same period last year.
However, Shetty says that now the valuations have become stretched. There is a lot of money the PEs are sitting on at the moment globally and India is one of the pockets of excellence, supplies are shifting from China etc. The growth in deals in the recent past has driven the valuations up and now it is no more cheap. “Whichever measures you take - whether it is earnings per share (EPS), earnings before interest, taxes, depreciation and amortisation (EBITDA), price to earnings (PE) ratio, forward or trailing indicators - pharma is now the top end of the spectrum and people think that the opportunities are further there. It will continue to be strong for the next two to three years, because there are very few sectors with that kind of a potential,” he added.
Private equity firms have been very active in the sector, more than strategic players in the last 10-12 months and that will continue this way because they will continue to shop for good assets. There is also more interest in the digital side of the business now, where there are a lot of technology elements to it such as digital supply chain, telehealth, telemedicine, and virtual patient experience opportunities. Diagnostics is another huge segment. Hospitals are seeing traction, considering the dearth of healthcare infrastructure. Driven by the PLI scheme, driven by the bad infrastructure in healthcare, driven by digital disruption you will see PEs putting their bets in those areas, said Shetty.
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