Study Shows Increased Private Capital Investment in the Healthcare Industry Over the Next 12 Months

Investment in the healthcare industry are expected to increase significantly from just six months ago according to a study from Pepperdine University's Graziadio School of Business and Management. In summer 2010, 4.8% of Private Equity fund professionals said they planned to invest in the healthcare industry and now that number has more than doubled to 11%.

These findings were released today as part of the Pepperdine Private Capital Markets Project, an investigation of the major private capital markets that examines the current state and outlook for the private capital industry.

Similarly, Venture Capitalists ranked healthcare high on their list of target industries. Of the 213 participants who responded to the Venture Capital survey more than 25% said they plan to invest in biotech, medical devices and equipment, pharma, and healthcare services over the next 12 months.

"The upswing of private investment in the healthcare industry is likely due in part to the federal healthcare reform legislation that was passed earlier this year," said Dr. John Paglia, lead researcher of the Private Capital Markets Project and associate professor of finance at Pepperdine University's Graziadio School of Business and Management. "The increased attention can also be attributed to a longer term demographic shift to an increasingly older population."

Other private investors noted a focus on healthcare in the coming year. Angel investors who participated in the Pepperdine Private Capital Markets Study said that healthcare and related businesses were high on their list of anticipated investments at 23.9% over the next 12 months.

Private Equity survey key findings include:

  • Nearly 70% of respondents said that demand for business investment is up from six months ago as is investment standards, appetite for risk, and the quality of companies seeking investment.
  • Almost two-thirds of respondents (approximately 64%) are looking to make two to four investments in the next year and approximately 12% of those will be distressed assets.
  • Government regulations got the most votes from private equity groups (41%) when it came to emerging issues. Limited access to capital also got the highest votes from private equity groups (31%) when asked about significant trends or developments in the industry.

Angel investor survey key findings include:

  • Nearly 55% of respondents reported that less than 25% of deal flow comes from syndications and only 1.8% reported 100% of deal flow coming from syndications.
  • Nearly 76% of respondents reported making at least one follow-on investment in a previously funded business.
  • Respondents reported their exit plans for portfolio companies and 36.6% of respondents reported their plans to sell to a public company, and 30.8% reported their plan to sell to a private company.

Venture Capital survey key findings include:

  • Over 43% say that they expect general business confidence to increase over the next 12 months.
  • A strong management team is particularly important to VCs as 93.9% of respondents said that the interview with the management team is a very important deal characteristic.
  • 46% of respondents thought that limited access to capital would be the most prominent emerging issue, while only 18% worried about government regulations.

With over 99% of companies having fewer than 500 employees, our economy is dependent upon the success of small businesses. The Pepperdine Private Capital Markets Project is critical step along the path of understanding and increasing the value of private companies and our economy. Professionals who work in the lending either for an institution or a specific fund are excellent bellwethers of what is ahead for other businesses and consumers.

Through two survey cycles and published summary reports per year, lender, investors and the businesses that depend on them will be able to make optimal investment and financing decisions, and better determine where the opportunities to create lasting economic value may be realized.

The study is available at: