VC-backed biotechs sustain faint pulse of Benelux healthcare

At 15 deals worth a combined €185m, healthcare investments in the Benelux region reached a nadir in 2015. However, far from a new development, the decline has been evident for some time; a quick glance at unquote" data confirms as much. While dealflow fell from 23 transactions in 2012 to 15 deals in 2015, aggregate value plummeted from almost €2bn to a meagre €185m between those years.

The slowdown had already been noted by local observers, including local law firm NautaDutilh, which found healthcare deals had slipped from being the most popular sector for the region's GPs in 2013 to the third most popular in 2014.

However, when looking at all of Europe, it becomes apparent that the Benelux countries were not alone in having a quiet year for healthcare investments. At 15 of a total 124 deals, Benelux healthcare represented 12.09% of the region's entire activity last year, in line with DACH's 12.81% and France's 10.65%. The difference with the two larger markets lies in value: while healthcare investments accounted for 17% of all deal value in DACH and 15.76% in France, the ratio in Benelux was a modest 1.12%.

In addition, unquote" figures suggest the gap between Benelux VC- and PE-backed healthcare is widening. The disparity is not a new one, to be sure; for years, venture capitalists have generated more dealflow in the region's industry than buyout houses. However, their dominance in 2015 was so marked that, unlike the previous years, the two largest healthcare deals in the year – Merus's €72.8m series-C and Novadip's €28m series-A – took place at the venture level. The biotech segment was a profitable bet for VC houses on the sell-side, too, with Forbion Capital Partners telling unquote" it expected a jaw-dropping 50x return from its exit of Dezima Pharma to corporate Amgen.

Ailing healthcare providers
VC-backed Benelux biotech companies may be thriving but the deals in the healthcare service provider space have been far more challenging. "Specifically in the Netherlands, hospitals and clinics have been under pressure due to post-crisis budget constraints," says managing partner Jasper van Gorp, who oversees a healthcare-services-dedicated fund for Gilde Healthcare.

We currently don't hold any stakes in a clinic or hospital. Instead, we have been focusing on, for instance, private elderly care, companies that run outsourced services and contract research organisations" – Jasper van Gorp, Gilde Healthcare

According to van Gorp, his firm anticipated the difficulties of certain Dutch private operators and chose to retrench from the segment temporarily: "We currently don't hold any stakes in a clinic or hospital. Instead, we have been focusing on, for instance, private elderly care, companies that run outsourced services and contract research organisations." Interestingly, unlike its mostly Netherlands-focused predecessor, Gilde's second dedicated healthcare services fund comes with a broader European geographic scope. Having closed the vehicle on €100m in January 2015, the GP is currently working on a number of opportunities abroad, according to van Gorp.

A key private equity strategy for hospitals and clinics, consolidation has been a strong theme in larger markets such as France, with examples including Gimv's Almaviva Santé. And this might explain why French healthcare service providers (40.8% of all healthcare deal value from 2010-2015) have historically outperformed their Benelux peers (6.3%). According to van Gorp, the Benelux's potential currently lies in the fragmented Belgian medical and dentistry operators. Meanwhile, the picture is different in the Netherlands, he says, where private equity-backed consolidation has been an ongoing process for years now.

In its report, NautaDutilh blamed the Benelux healthcare services slowdown on unpredictable policymakers and the inability of operators to distribute profits. Since being formally set up in 1968, the Dutch healthcare system has undergone deep reforms and gradually opened up to private competition, but players have long been deterred by the non-profit requirement for certain segments.

However, van Gorp reveals that change could soon be underway, at least in the Netherlands: "Although the proposals have been frozen for more than a year, the Dutch government has discussed lifting the ban on for-profit hospitals for years so we might see changes from that direction."

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