Providers of all sizes nationwide have seen their volumes—and, consequently, their revenue—plummet in recent months as they've been forced to suspend procedures during the COVID-19 pandemic. That's caused private equity investors to pause or cancel several healthcare deals as they wait to see when or whether revenue will return to outpatient medical practices, Fernyhough said.
Some investors are also holding off on deals until after the November presidential election, as they're leery of paying too much for a company that might lose value down the road if there's a significant shift in health policy.
"That's also something that's giving private equity investors pause," Fernyhough said. "That's not to say that won't pick up depending on who becomes president."
Further, it's not unusual to see 2 or 3 percentage point swings in healthcare because of one or two larger deals, Fernyhough said.
Across all industries, PitchBook found that U.S. private equity dealmakers closed on 2,173 deals totaling $326.7 billion in the first half of 2020, down almost 20% from the first half of 2019. Private equity deal value in the second quarter of 2020 was down more than one-third from its value in the second quarter of 2019.
The COVID-19 pandemic has had an even bigger effect on exits. Through the first half of 2020, U.S. private equity firms have closed 392 exits valued at a combined $134.8 billion, the report found. Announced global PE exits were down about 70% in May 2020 compared with May 2019. The culprit, the report noted, is a steep falloff in portfolio company valuations.
The pandemic has also prompted PE firms to quickly pivot to so-called private investments in public equity (PIPE) deals, which is when they buy stock directly from a public company, typically for less than market price. These types of deals have gained popularity as public companies seek to raise capital amid falling equity valuations.
One example of a healthcare PIPE deal Fernyhough cited was Blackstone Group's $2 billion investment in Alnylam Pharmaceuticals, a Cambridge, Mass.-based drugmaker that's developing a COVID-19 treatment. Included in the Blackstone deal is a $100 million stock purchase and $1 billion in royalties.
PIPE deals in other sectors include Ares and Providence Equity Partners buying $400 million in convertible preferred stock from Outfront Media and Great Hill Partners and Charlesbank Capital Partners helping Wayfair raise $535 million in five-year convertible senior notes.