According to Pitchbook’s latest “Healthcare Funds Report” for the 2nd half of 2023, approximately 500 healthcare and life science financial entities specialize in our industry. These include both private equity (PE) firms and venture capital (VC).

It was reported 2023 was the “strongest fundraising year on record for healthcare specialist PE managers.” And they’re looking to spend those funds on good, profitable companies. They focus on earnings before interest and taxes, depreciation, and amortization (EBITDA).

At MedWorld Advisors, we’ve noted more PE firms are specializing (or focusing) in the healthcare middle market (companies from $1 million to $20 million EBITDA). We receive inquiries regarding our current (or future pipeline) clients almost daily.

Why are PE firms focusing on healthcare more? It’s as simple as 1-2-3:

1. Dry powder (industry term for investment funds available to acquire businesses): Multiple sources say there’s more dry powder on the sidelines now than ever. Why is that important? PE firms need to spend those reserves, or they’ll lose them. The only way they make money is to invest their piggy banks!

2. Demographics: It’s highly reported the global population is aging and needs more services. For us personally, doctors seem to now know our name. When we were younger, we barely knew their name.

3. Medtech is recession proof: Except for the recent pandemic, medtech simply doesn’t have recessions. Even when it hits other areas of the economy, people still need to take care of their health. Therefore, our industry is a good bet due to continuous annual growth.

If the investment numbers are good, is it good for sellers? Are valuations acceptable? This answer is as simple as A-B-C.

A. Always – If you’re a quality business with profits, then you’re a rare commodity IF you’re ready to sell. You’re a gold nugget that’s hard to find. Buyers will fight to get you – which usually means a nice valuation if you run a competitive process.

B. Better – The multiples are better than most industries. Why? Because the risk is less and the growth is somewhat reliable in our market segments. They call it a sticky business model and that’s in your favor as a seller!

C. Close – If your business is performing (profitable) and you’re thinking about selling, close the deal while the buyer dynamics are in your favor!

In summary, the numbers are in your favor, including the number of:

• PE firms seeking your type of business to acquire.

• Dollars available to invest in your company.

• Multiples which you’ll enjoy. Usually, it’s a multiple of your EBITDA but sometimes it’s a multiple of your revenue.

And we didn’t even mention the strategic acquirers (larger companies) and how they’re now returning to post-pandemic acquisition mode. If you have good numbers, you’ll get the attention of the PE firms at a good valuation. And, if you happen to catch the attention of a strategic, your numbers may get even a bit better!

About the authors: CEO Florence Joffroy-Black is a long-time medtech M&A and marketing expert. She can be reached at florencejblack@medworldadvisors.com. Managing Director Dave Sheppard is a former medical OEM Fortune 500 executive and an experienced medtech M&A professional. He can be reached at davesheppard@medworldadvisors.com. Value = Strategic Fit + Timing® is a registered trademark of MedWorld Advisors.