More private equity firms took their healthcare provider portfolio companies public in 2021 than ever before, and one research firm thinks the number will almost double in 2022.
Data analytics and research firm PitchBook predicts at least 10 private equity-backed healthcare provider platforms will list publicly next year, breaking 2021's record of six such IPOs. The prediction was part of PitchBook's 2022 U.S. private equity outlook.
Six PE-backed healthcare provider IPOs in a year might not sound like a lot, but it compares with between zero and two in each of the previous 10 years, PitchBook found.
So what explains this year's unprecedented spike and next year's even bigger projected spike? It's actually pretty simple: The stock market is performing well, said Rebecca Springer, a private equity analyst with PitchBook and one of the report's authors.
"The multiples in public markets are very, very strong right now, so you can get, all else equal, a better return on your investment if you go public with your company rather than selling it to a strategic investor," said Springer, who noted that the prediction of more PE-backed companies going public in 2022 is not confined to healthcare.
This year's PE-backed companies going public included physician enablement companies Agilon Health and Privia Health, home care providers Aveanna Healthcare and InnovAge, behavioral health provider LifeStance and nonsurgical fat reduction chain Elite Body Sculpture.
PitchBook excluded two PE-backed healthcare providers that went public in 2021 through mergers with special purpose acquisition companies: Cano Health and CareMax Medical Group. Both Cano and CareMax focus on providing value-based primary care to seniors.
Private equity investment in healthcare has fueled growth across multiple sectors of the industry, with annual deal values almost tripling between 2010 and 2019.
Private equity firms are famously tight-lipped about how they run their businesses. Even so, the increased public disclosure required of public companies hasn't seemed to dissuade those that are ready to take that step, Springer said. For one, the disclosures are made at the company level, not the PE firm level, she said. And any company that goes public must decide whether the return is worth potentially being less strategically nimble.
"The multiples are so attractive in the public markets that they're rewarded for being able to do that," Springer said.
PitchBook's report says there's reason to believe public investors will want to buy into companies whose business models revolve around value-based reimbursement, which has very gradually been gaining steam among primary care providers, hospitals and specialists and has bipartisan political support. Much of that is happening through Medicare Advantage, the health insurance program for people over 65 that provides Medicare benefits through commercial health insurers.
"They see it's the future of the industry and they want to be on the right side of this trend," Springer said.
The PitchBook reports highlights cosmetic dermatology as a sector in which PE-backed providers could take companies public next year. Others include home care, behavioral health and veterinary medicine. Large PE-backed dental groups like Aspen Dental could do well in public markets as well, Springer said.
Shares of some PE-backed providers have fallen in value since their IPOs this year. Agilon, for example, had shed almost one quarter of its share value since its April IPO as of Friday. Aveanna's share value has fallen almost 44% in the same window.
Springer said that could be a consideration for some PE firms thinking of taking companies public, but it won't dissuade everyone.