2020 was a year that no one could have predicted with the onset of the pandemic and its impact to the U.S. economy. As we head into 2021, the end of pandemic is in sight. However, we continue to see pervasive daily increases in coronavirus cases, high death rates, and continued challenges around the rollout of the vaccine. Based on current conditions, the U.S. is experiencing a K-shaped economic recovery, in which one segment of the economy begins to climb back upward while another segment continues to suffer.1
On Thursday, January 14, 2021, Leavitt Partners held a LinkedIn Live broadcast focused on 2021 Healthcare and Life Sciences sectors investment outlook featuring Andrew Croshaw Jennifer Colamonico, along with Brett Glover, partner, Healthcare and Life Sciences, Deal Advisory Leader for KPMG. They discussed the implications related to the explosion in deal activity during the last half of 2020, priorities of the Biden administration as well as and projected trends for 2021.
2020 Investment Recap
2020 was an unusual year in the investment sector. Mergers and acquisitions, non-profits, and private equity deals were place on hold in Q2 until the second half of the year, while corporate investment activities continued. Towards the end of the year, the pressure to deploy capital was as high as it has ever been. The volume of deals exploded, but the deal values were much smaller. Also, in a typical election year, bulge bracket investment banks do not typically make large healthcare acquisitions of businesses with reimbursement risks, but that was not the case in 2020.
In addition, special purpose acquisition companies (SPACs) came into play and disrupted the healthcare and life sciences sectors toward the end of 2020. They contributed to historical volumes and new market entrants. We speculate that SPACs will continue to disrupt the market well into 2021 due to the pressure of needing to quickly deploy capital within the given investment period.
Outlook for Health Policy in 2021
The Biden Administration’s top priorities include fighting the pandemic, promoting economic recovery, as well as shoring up the Affordable Care Act (ACA) largely through executive actions. A very split Congress creates the promise for bipartisanship, as the declining rates of insurance call for greater action on insurance coverage. President Biden will put acute focus on addressing racial disparities in health (and other areas). However, the realities of significant federal spending require policies and practices that get costs under control, especially as states struggle to fund critical public programs.
We also anticipate a shifting payer mix as the ACA is revitalized with more subsidies to grow the individual market. Medicare and Medicaid will continue to grow as well, adding to the pressure on government and providers to find ways to reduce costs while providing high quality and more equitable care.
2021 Investment Outlook
KPMG recently completed a survey of nearly 300 investment executives regarding the healthcare and life sciences markets. Key takeaways from KPMG’s survey findings include:
- Most investors said their deal volumes would stay the same or increase in 2021.
- Private equity investors are most interested in healthcare IT (HCIT) and pharmaceutical services.
- Likely because of the pivot to telemedicine in 2020, telehealth is ranked as the most attractive HCIT subsector for investment in the next 12-24 months.
- Hospitals and health systems’ top areas of investment in 2021 will be in HCIT and telehealth.
- Physician practices see behavioral health as the top area for future investment.
If you would like to receive a copy of KPMG’s 2021 Healthcare and Life Sciences Investment Outlook report available on January 25th, click here.
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1Elizabeth Aldrich. “What a K-shaped recovery means, and how it highlights a nation’s economic inequalities.” Business Insider. December 17, 2020. https://www.businessinsider.com/k-shaped-recovery-definition.