Nordic PE healthcare deals in need of resuscitation

In recent months, there has been a flurry of activity at Swedish university Karolinska Institutet's early-stage venture fund, Karolinska Development, as it plans to refresh its role in Nordic life sciences investment. This year saw the VC bring in Dr Jim Van Heusden as CEO, tasking the former Gimv partner with rejuvenating the investor.

Karolinska Development has completed a series of exits this year, as part of plans to slim down its current portfolio, increase the focus on developing remaining investments and present a more focused strategy, Van Heusden tells unquote".

The volume of early-stage investment in the Nordic healthcare and life sciences sector has been stable at a decent level in recent years, according to unquote" data, and has also benefited from increased activity in investments from the corporate venture arms of the Nordic healthcare giants, such as Lundbeckfond Venture, Novo Venture and Novo Seeds.

Healthy exit
Nordic VC-backed healthcare companies have also proven a valuable investment for their backers, with three exits since August last year bringing in more than €300m each.

Only one private-equity-backed company has provided its GPs with exits in excess of €100m in the same period: Nordic Capital and Apax's €250m exit-by-IPO of Swedish healthcare provider Capio in June.

The exit market in the healthcare sector has been weakening since a record-breaking 2011, which saw sales worth €15bn, largely propped up by Nordic Capital's €9.5bn divestment of Swedish pharmaceuticals company Nycomed to Japan's Takeda.

Buyout activity has been on a similar downward trend since 2006 – the
10-year LBO peak – which saw 12 deals totalling €7.6bn. With a total deal value of around €4bn, the past five years combined barely even break 50% of 2006's performance.

Booster shot
Indeed, the data points to a sector that saw little activity before the financial crisis, boomed in the years leading up to it, and subsequently returned to previous levels in the wake of the crash.

"What you've seen in the past few years is... largely driven by the macro," says Dr Raj Shah, London-based healthcare partner at NC Advisory, and adviser to the Nordic Capital funds.

He says the effect of the financial crisis was felt across Europe until around a few years ago and the period was characterised by an absence of corporates being active in the space, resulting in muted M&A and sell-side activity.

Shah also points out that many LPs were reluctant to give investment commitments during this period and while there were plenty of opportunities for GPs to deploy capital, there was little appetite to do so, as was the case across asset classes.

Post-recovery, the healthcare sector has seen the resurgence of an active corporate M&A market. While dry powder reserves of big pharma and life sciences conglomerates have improved exit routes for GPs, it has also put pressure on pricing, making it harder to find good value assets.

Jonas Agnblad a partner at NC Advisory in Stockholm, says some of the healthcare startups in the Nordic countries – for instance in the Øresund region – could provide dealflow for private equity activity in the future, when asked whether the current strong venture investment trend might develop assets into potential buyout targets.

He also suggests more private equity activity will likely be seen as increased volatility in the public markets makes private transactions a more attractive route for the sell-side.

Agnblad expects the Nordic countries to present investment opportunities for private equity. "The Nordic region has all the right fundamentals to continue to develop as an interesting centre for healthcare businesses," he says, adding that the healthcare sector, "is a very global market – you need to think beyond your local region when you're investing in healthcare businesses."

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• Topics
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• Buyouts
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• Nordic Capital
• Apax Partners
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