Healthcare private equity (PE) exit deal volume remained low in 2024, down 41% from its 2021 peak (see Figure 1). Interest rates, an uncertain macroeconomic backdrop, and misaligned expectations have resulted in a stalemate between buyers and sellers. Therefore, fewer assets are changing hands, prolonging hold periods and straining funds’ ability to return capital to their limited partners (LPs) (see Figure 2).

Figure 1

Figure 2

While multiple expansion propelled almost half of total deal returns historically, this lever is unlikely to power returns in the years ahead to the same degree (Figure 3). Stalling multiples, combined with higher financing costs, means sellers must rethink their deal models to make the math work. To break this logjam and deliver expected returns to LPs, PE sellers must think about value creation in a way they haven’t in the past—both at the time of investment and later in the hold period.  

Figure 3

Learn more about DealEdge

DealEdge is the private equity industry’s leading provider of deal-level performance and operational analytics. It is powered by 35,000 private equity deals across more than 560 industry subsectors. Sharpen your investment edge and make data-driven investment decisions more quickly and confidently with DealEdge.

The onus is on sellers

To maximize exit value, ensuring both a successful process and a high price, sellers must change how they approach exits. Winning strategies—and management presentations—should include the following actions:

• Present evidence of actions creating value. Show causal links between management’s actions and results that tie to the original value creation plan. While having a high-performing asset and citing recent management initiatives may once have sufficed, today’s buyers demand more. They want a validated, repeatable playbook outlining value creation levers that will spur profitable growth, such as a proven approach to mergers and acquisitions, delineated strategies for ancillary attach rate growth in healthcare IT assets, and site-level optimization for distributed provider businesses.
• Reveal the substantial value that remains for the buyer. Outline how the next phase of the value creation plan will fuel revenue growth and capture new efficiencies. Compelling sales pitches don’t simply assert that there is runway for further improvement—they highlight the underlying levers and offer a roadmap with explicit initiatives. Value levers can range from increasing the role of the center for provider assets to detailing capability expansions for medtech; what matters is specifying the building blocks for implementation.
• Provide reasons to believe. Establish that the initiatives in the plan aren’t just speculative but have already gained traction in the organization and market. This marks a departure from traditional management presentations, which often contained promising ideas but lacked concrete plans for execution. Sellers are most effective when they can point to tangible evidence, such as healthcare IT assets demonstrating increased attach rates and/or demand for new products, which shows buyers that the initiatives, if continued, will be actionable and effective, leaving money on the table for the next buyer.

A strategy for maximizing exit value

Proof of past performance and a clear articulation of the asset’s potential boosts conviction that the asking price is justified. When preparing to exit, PE sellers must articulate the asset’s equity story and set the stage for the next owners. Maximizing exit value has always been pertinent to sellers, but the current environment heightens its importance. With the decline in sponsor-to-sponsor healthcare deals over the past few years, sellers have relied on synergies such as cross-selling or go-to-market optimization to create value for strategic buyers. However, as sellers look to revive sponsor-to-sponsor deals, applying exit value maximization (EVM) principles will be critical not just for maximizing exit value, but for closing deals.

Implementing this type of exit strategy is not something that can be done on the fly. In fact, successful sellers often begin the process a few years before their target exit so they have time to revisit the original value creation plan, reorient strategic initiatives, and generate preliminary results.

To develop an EVM game plan, sellers should keep several guidelines in mind:  

• Re-conduct due diligence on the asset. The first step for sellers involves an unbiased assessment of the asset’s performance and progress against the current value creation program. As macro conditions often change over the course of a hold period, one must understand the asset’s current position in the market, positive and negative areas of differentiation relative to competitors, and headwinds or tailwinds affecting the asset’s performance. Sellers should preemptively seek out potential “deal killers” and work to mitigate these issues in the latter part of their hold.
• Align strategic priorities. The second step is to define the next avenue of growth and develop a strategic blueprint for continued momentum. This means identifying growth levers and understanding their effect on EBITDA. The resulting plan should contain a high-level vision and the initiatives required to realize it, including estimates of the size of the prize and tactical details for implementation.
• Demonstrate execution of the new plan. The third and most important step is for sellers to begin executing initiatives before going to market, thus making the plan real and delivering early wins that increase conviction in the path forward. This might involve using artificial intelligence capabilities to optimize healthcare IT pricing, redefining providers’ value proposition to increase monetization, or developing prototypes for medtech product expansions.

The buyer’s role in value creation

This emphasis on value creation applies to buyers as well: It is never too early to start thinking about how to increase value in an asset. Integrating value creation principles into the pre-acquisition diligence can provide a competitive edge throughout the hold period—and enable buyers to hit the ground running on Day 1.

Understanding the tactical foundation underlying the value creation levers, as well as the operational complexity involved in realizing them, empowers buyers to assess valuations accurately and with greater confidence. While having a plan for the first 100 days is standard practice, the best buyers start in-depth planning and analysis well before closing the deal.

Not zero sum: Sellers and buyers can win together

Macroeconomic volatility and a tepid exit environment within healthcare PE have put the onus on sellers to prepare their assets for exit by focusing on their equity story. While economic relief may be on the horizon, we are still in a higher interest rate environment, and buyers are more sophisticated than ever—increasing the need for strong data-based equity narratives to bridge potential gaps between parties.  Buyers that integrate value creation into their deal theses and diligence processes position themselves to deliver strong returns to LPs and capitalize on the next wave of opportunities.