Private equity deals in the healthcare sector during 2022 showed a reasonable decline compared to the previous year. According to the Pitchbook: Healthcare Services Report, 863 deals were closed (vs. 1013 the previous year). Although the record deal activity in 2021 has slowed down due to macroeconomic uncertainty, with rising interest and inflation rates, investments in the sector remain relatively healthy. As expected, it was the second-best year.

However, the landscape is changing. The Report shows a downward trend: “Weeks-long deal processes seem like a distant memory.”

Innovation and the incorporation of new technologies is not and option for healthcare firms: it is the central strategy for improving all the indices assessed by investors, thus enabling a better deal. One of the takeaways from J. P. Morgan 2023 Healthcare Conference is that “Despite enormous headwinds in the provider end market, healthcare IT companies that are providing essential digital infrastructure are continuing to see rapid growth.”

Lower costs, higher profitability

A data-driven mindset enables companies in the sector to optimize the management of medical expenses; according to the Pitchbook Report, Healthcare spending in the United States is expected to reach $6.8 trillion by 2030. But the problem is not so much in the amount as in the inefficiency: 25% of that spending is considered wasteful. Therefore, the average company in the sector could reduce its costs by around a quarter just by optimizing processes and adopting automation. Research cited in the Pitchbook Report indicates healthcare staff – perhaps in the absence of data support- make less-than-optimal healthcare choices 38% of the time, negatively impacting healthcare and its related costs. Informed decisions are essential not only to keep costs under control but also to save lives.

The benefits of innovation are not just about lowering costs: in a recent initiative, a client of Making Sense, a leading U.S. healthcare provider, significantly improved the patient experience and multiplied the volume of consultations made through digital channels – with a subsequent cost reduction – and increased the number of members enrolling through the app. All this was achieved by redesigning its digital application, but this time focused on UX. Adopting new technologies and changing mindset towards a data-driven organization also impact generating new revenues and increasing profitability.

Innovation is key

Even from a talent standpoint, innovation, through increased efficiencies, automation of manually intensive and repetitive tasks, and improved patient satisfaction, helps to reduce the stress of healthcare staff, another of the industry’s major weaknesses.

Innovation is critical for healthcare firms to obtain better deals with PEs in quantitative and qualitative terms. There is a perception about bringing capital into the sector: “Prices almost always go up, and the quality of care almost always goes down,” notes a September 2022 Bloomberg Report. New technologies enable a new generation of data-driven healthcare companies with streamlined processes, costs under control, and customer experience policies that invite investors to try to reinforce those strengths.