Rewind 2014: PE dealmaking in healthcare skids; M&As brighten

Healthcare sector saw private investments shrink in 2014 after hitting an all-time high the previous year. Lack of big ticket deals as well as lower number of transactions slowed down overall investment activity in the sector even as merger & acquisitions (M&As) shot up further continuing the previous year's momentum.

Private investments

This year, there have been 73 PE (including PE, VC and angel/seed) deals worth $940 million  against the previous year's record $1.48 billion spread across 93 deals, as per preliminary data collated by VCCEdge, the data research platform of VCCircle.

“In the past two years there have been many investments by PE and VC in the single-specialty space as they were just blooming then and so a bunch of them got funded. Now it has reached a stable state and people will invest as per merit,” according to Nitish Agrawal, co-founder & director of boutique corporate advisory firm Veradis Capital.

Going forward there will be as much consolidation as there will be fresh funding and the deal sizes will get larger but the number of deals may be lesser than before as seen this year, he added.

One noticeable difference compared with last year was the sharp decline in both PE and VC deals in terms of both volumes and investment amount even as angel/seed investment transactions rose. Indeed, angel/seed deals comprised around a quarter of the total transactions in the sector.

“In pharma most of the companies are listed, however, there is huge scope for innovative ventures in healthcare and so angel led funding with newer ideas will remain robust. The pharma space is the next big frontier where we will see a lot of growth and it is about innovation and many investing opportunities will arise,” Siddharth Dhondiyal, director, India Value Fund Advisors, a PE firm which has backed a few healthcare firms in the past, said.

Private equity investments declined to around $850 million against a record $1.3 billion while VC investments almost halved to around $80 million. Volumes for VC and PE deals also fell around 30 per cent each while angel/seed deals volume rose almost 50 per cent to 20 transactions.

There were just two $100 million plus transactions this year against four last year, which punctured the overall investment value.

PE exits

Exit activity also slowed down significantly after a noticeable high last year when Apax Partners exited Apollo Hospitals while Emcure and Medanta saw big secondary PE transactions where Blackstone and Avenue Capital got exits.

In contrast, the only significant exit this year was ChrysCap part exiting Intas Pharma in a secondary deal with Temasek. Other transactions included Fidelity PE's liquidity event when Warburg Pincus bought into Laurus Labs, GE Capital exiting Syngene, India Build Out Fund pulling out of Krishna Institute of Medical Sciences besides OrbiMed, Carlyle and Signet pulling out from Claris in its buyback offer.


The one silver lining to dealmaking in the healthcare sector was M&As. Although overall M&A deal investment value is dominated by the proposed acquisition of Ranbaxy by Sun Pharma, the noticeable difference this year was the rise in deal volumes.

The number of M&A deals rose by over a third to 92 this year with an announced value of $4.6 billion against 68 deals with an announced value of $3.3 billion in 2013.

The aggregate investment value last year was skewed due to Mylan's deal to buy Agila from Strides Arcolab and this year it was puffed up by the proposed $3.2 billion ($4 billion including debt) Sun-Ranbaxy deal.

However, what's noteworthy is the perk up in the transaction volume which shows increasing acquisition appetite. In particular the rise in M&As this year has been led by cross-border transactions which rose over 50 per cent in terms of volumes. But domestic deals continued to comprise over half of the transactions.

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