12th Annual Healthcare Investor Conference

Dechert Panel: How Does the Investment Landscape Look Post COVID-19?
 

Robert Darwin, a Corporate partner based in Dechert’s London office chaired the closing panel "How Does the Investment Landscape Look Post COVID-19?" together with Isabella Eichler (Director, Altor Equity Partners), Linden Thomson (Fund Manager, AXA Investment Managers), Stavros Mercouris (Director, KKR) and Elisa Petris (Partner, Syncona).

A summary of the key takeaways and panel discussion video can be accessed below.
 

Key Takeaways
 

Immediate impact of the pandemic on existing processes and how these were managed

• At the outset of the pandemic, private equity funds focused on remediating urgent issues at their portfolio companies, with a particular need to address precarious cash positions and liquidity issues. Valuation gaps presented a challenge for transactions. Moreover, there were particular challenges for healthcare companies in certain disciplines, such as companies focusing on elective treatments, however these businesses have since recovered as lockdowns have eased. Private equity funds used the opportunities presented by the pandemic to reassess portfolio entity milestones, restructure business plans with management and delay exits, as required.
• There was an immediate slowdown in transaction activity in Q1 and Q2 2020, with some deals delayed or renegotiated in light of the pandemic. There has arguably been a shift towards viewing investments in healthcare as strategic and more resilient than other sectors, which in turn has led to higher valuations.
• There has, however, been substantial growth in Q3 2020, with transactions progressing and significant opportunities presented by the market, resulting in turn, in highly competitive deal processes. Operationally, the panel noted that their teams had moved successfully to the new virtual ‘normal’ with all fundamental stages in the transaction process able to take place remotely. The increased supply in equity, particularly in the biotech market, has been matched by notable demand from investors, a noteworthy feat given the large number of small cap IPOs which took place in 2020.

How the pandemic has changed thinking for 2021

• Due to the long lead time and research undertaken in healthcare companies and assets, opportunities are often found long before the investment is made by fund managers. Due to this, the healthcare sector is unlikely to be as affected as some other sectors; indeed our panelists did not anticipate a noticeable slowdown in this regard.
• The pandemic inevitably prompted an acceleration of growth in some areas, noticeably an increased focus on technology in healthcare, and an increased focus on data and innovative science. There is also a shift in stakeholders prevalent in the sector, with more private investors responsible for consolidation and digitalisation; a trend which our panelists expected to continue. These trends, and continued innovation in the healthcare industry, coupled with the availability of cheaper credit, led our panel to conclude that 2021 would be an incredibly active year for healthcare and life sciences deals.
• The trajectory of 2021 will also be shaped by political factors such as the outcome of the US election, and the route taken by President Elect Biden during the start of his Presidency. This coupled with the ongoing uncertainty of the COVID pandemic and questions surrounding the viability and logistics of mass vaccination programmes mean that the landscape for healthcare moving forwards is far from certain, although arguably more positive than other sectors.

Outlook for 2025 and beyond

• The panel noted that they expected the digitisation of healthcare to continue as it makes treatment more effective and analysis easier, with more participants in the industry becoming digitally enabled. The panel predicted that those in telemedicine and those that are able to combine their manufacturing services with their other operations will be particularly advantaged. Similarly, supply chains can be expected to become increasingly localised, with a move towards increasing production in Europe.

Exits

• Many exits were paused at the beginning of the pandemic as fund managers reviewed their strategies and reassessed their long term outlooks. Despite this, Q3 2020 saw a resilient levels of activity across the sector and investors indicated their confidence in the managers’ strategies, looking through the temporary decline in value to the future, with continued and growing demand for healthcare assets.