New opportunities flourish in Italian healthcare

According to Unquote Data, the sector recorded a rise in the number of deals to 13 transactions in 2018, five of which were buyouts with an aggregate value of €6.9bn. This accounted for around 36% of all private equity buyouts in Italy and was the second highest aggregate value for healthcare deals reached by a single European country, following Denmark. Even excluding the multi-billion deal for Recordati, which helped boost the final figure to a record high, the value posted last year represents almost double the €612m recorded in 2017.

Especially strong activity was seen in the second half of the year. Following the mega-deal for Recordati, acquired by a CVC Partners-led consortium in July, Principia bought a 65% stake in medical devices distributor Gada in October; Ardian acquired a majority holding in Neopharmed Gentili in November; and in the same month F2i bought a controlling stake in Farmacrimi.

According to a recent report published by PwC, Italy is the largest pharmaceutical market in the EU, with €33bn of annual production, followed by Germany with €29bn and the UK with €23bn. The Italian pharma sector has recorded 10% year-on-year growth and a 107% rate of export growth in the last decade. "The market is composed of around 19,000 small and medium-sized family-owned companies, with a long and successful tradition and the capacity to export around 70% of their production," says Sabrina Di Bartolomeo, PwC partner and pharma & healthcare deals leader. "Despite being excellent assets with high-growth potential, these companies can benefit from a modernisation process. A private equity fund can provide the structural sophistication and the capital to boost their internationalisation and expansion."

Consolidation is particularly strong in certain sub-sectors, such as diagnostic centres and private hospitals" – Sabrina Di Bartolomeo, PwC

Safe haven
In addition to an aging population, which has bolstered the vast investment opportunities offered by the sector, a forecast economic downturn has further boosted the expectations placed upon the healthcare industry. This is particularly important in Italy, where the shadow of the financial crisis is still lingering and local players need to prove their ability to be profitable even in a challenging economic climate. "The Italian healthcare sector is considered a safe haven, able to guarantee high margins, profitable returns and an abundance of deals despite a possible worsening of the economic scenario," says Di Bartolomeo.

Furthermore, the Italian healthcare sector is very fragmented, and offers a wide array of opportunities for consolidation, a trend that is seen with particular favour by Italian and international private equity houses, often focused on a buy-and-build strategy able to create aggregation platforms and scale up the market.

"This consolidation trend is particularly strong in certain sub-sectors, such as diagnostic centres and private hospitals, which have started an aggregation process to achieve economies of scale," says Di Bartolomeo. "In the dental care clinics and laboratory chains space, the consolidation is expected to pick up steam, also expanding in the biological and microbiological food analyses sector. In addition, consolidation is likely to happen in the pharmacy stores and chains sector, despite a challenging regulatory environment."

Opportunities for consolidation are also available at the upper end of the market, which primarily comprises a handful of large pharmaceutical companies. "It is very likely that these large-caps will aggregate, which will create a pharmaceutical leader able to compete with its international peers," says Bruno Gattai, managing partner at Gattai Minoli Agostinelli & Partners.

This rising interest in the healthcare sector has also presented some new challenges, boosting valuations and increasing competition. Gattai says: "Despite an upsurge in multiples, the pipeline is rich and we expect new interesting assets to come to the market in the next few months, attracting both local and foreign private equity houses."

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• Topics
• Southern Europe
• Healthcare
• Investments
• Sector focus
• Italy