The worldwide shortage of healthcare professionals is driving the need for more medical education. Private equity firms are leveraging M&A and organic growth strategies to build sizable platforms to meet the demand for more training.
Recent deals include:
(See the table below for more deals.)
“Healthcare education generally is an industry that is not very professionalized,” Pierre de Sarrau, partner at Charterhouse, told PE Hub. “So, when you have new PE buyers coming in, a lot of time and effort is spent scaling up and professionalizing operations, often by improving the content, updating digital offerings and accelerating business development by adding new campuses, schools and programs.”
To learn more about what’s driving deals in the sector, PE Hub spoke with a range of sources, including de Sarrau; Teruyuki Asaoka, managing director in the EQT Private Capital Asia team; John Bailey, managing partner and founder, and Brent Gunderson, managing director, of Knox Lane. In this story, we explore three areas that PE firms are investing in: schools, remote learning and specialization.
Schools
Demand for trained medical professionals outweighs the available supply of students and is further exacerbated by the continuous large exodus of retiring physicians. As a result, the world is projected to face an estimated shortfall of 11 million healthcare workers by 2030, particularly in low- and lower-middle-income countries, according to the World Health Organization.
PE firms sees M&A as a way to expand healthcare training programs in public and private universities and medical schools across different regions and countries, increasing access for potential students.
“M&A allows you to create stronger business development opportunities, including the ability to open up offerings to international students,” said de Sarrau. “A fresh student base and new programs bring strong opportunities.”
He added, however, that there are high barriers to entry for private equity firms, such as regulatory and accreditation challenges, scarcity of assets and complexity of integration and costs. “The problem that PE has is that the sector doesn’t have any sizable platforms. Either you start very small, which is what we did, or very big with a big university.”
In 2020, Charterhouse acquired Novétude Group, a Paris-based developer of graduate training programs for healthcare professionals, for less than €100 million. Under Charterhouse, the company has expanded into Spain and grown from an €8 million EBITDA business to a €47 million one. Initially focused on osteopathy, the business also expanded its scope of focus into other areas, including physiotherapy, dentistry, radiology and pharmacy.
Charterhouse sees opportunities to expand Novétude’s geographic presence further into Italy, Germany and the UK, among other markets, and aims to grow the company into a €100 million EBITDA business. It sees the sale of its minority stakes to Peugeot Invest and Hayfin Capital as a step in this direction by providing liquidity and resetting a new managed buyout transaction for Novétude.
“If you look at Europe, there is a lot of interest in healthcare education, but I’m afraid there are only two or three players that can do it,” said de Sarrau. “That’s the beauty and the opportunity for us. In a deal where we are looking at building a platform with the view of consolidating the market, you have very few competitors because of those huge barriers to entry.”
Other PE firms investing in healthcare training programs include TPG, which made a minority investment in Healthcademia in November, and Crescera Capital-backed Afya Limited, which completed a 100 million reais ($17.5 million) acquisition of Faculdade Única de Contagem in May.
The desire to increase access to medical education programs in public and private institutions is expected to continue driving PE investments and, in turn, regional and international M&A expansion in the medical education market over the next decade.
Remote learning
Consumers, including physicians, are increasingly digesting information online. This trend is driving PE to invest not only in online medical education platforms but also digital tools and service providers that these businesses utilize.
“AI is affecting peoples’ information collection behavior,” said Asaoka. “Physicians are no exception. Early adapters are starting to integrate AI into their workflows. Obviously, it requires standards of accuracy, comprehensiveness and recent timing. Those things are quite high. But AI is penetrating the healthcare and medical industry.”
Increases in remote and hybrid settings necessitate the need for digital and AI-powered tools to market and promote educational content, collect and manage rapidly growing data sets and engage with physicians and medical students in different ways compared to in-person. In dealmaker’s eyes, many of these sought-after capabilities can be obtained through M&A.
For example, EQT plans to pursue bolt-on acquisitions as well as organic growth initiatives to add go-to-market promotional capabilities for Tokyo-based CareNet, a provider of regulatory and clinical education content and news on the pharmaceutical and medical sectors for Japanese physicians.
By integrating newfound digital capabilities, EQT plans to modernize CareNet’s digital presence and provide a more personalized approach that it expects will broaden and deepen physician membership. In doing so, the firm expects CareNet to gain a stronger position in the market, especially in Japan’s medical specialty sector, in the next few years.
“In the end, physicians and pharmaceutical companies are more willing to use digital for their educational and promotional activities,” said Asaoka. “They are increasingly understanding and accepting the impact of AI and other digital tools and channels. We think this is an interesting shift in the broad healthcare education sector, especially in Japan.
“If your investment target is on the right track in terms of the changes happening within, then this is a very thematic investment. So, we are attracted broadly to this healthcare education and promotion universe, especially from a digital angle.”
Similar investments came from Accel-KKR, which made a strategic investment in Exxat in January, and Cressey & Company-backed Activated Insights, which acquired CareAcademy in November.
PE is expected to increasingly pursue M&A and organic growth initiatives to add digitization and AI capabilities that enable platforms to promote educational content and better engage with medical professionals and students remotely.
Choosing a specialty
Shifts in focus among medical professionals from general practitioner work to medical specialties is incentivizing PE to target healthcare education investments in high-growth subsectors.
Increases in chronic and complex diseases are creating greater demand for specialty services. This trend, along with lower reimbursement rates and more challenging working conditions, are leading healthcare professionals and students to pursue roles in medical specialties over general practitioner care. As a result, PE dealmakers are becoming selective on which medical specialties of healthcare education they choose to invest in. Many are targeting businesses in pockets of the market where demand is high, and there is potential to expand into adjacent markets.
“From our perspective, we think it’s about how you bring the right information to the right clinicians in the right way, both with experiential learning but also on demand,” said Gunderson. “It’s about meeting the clinicians where they are 365 days a year. That’s the guiding north star for what we are doing, and HCEsquared has done that by becoming a leader and a trusted adviser in the dermatology community at large.”
Based in Plano, Texas, HCEsquared is an education, information and services platform for US dermatology healthcare professionals. In addition to adding new services, capabilities and talent, Knox Lane sees M&A and organic growth as ways to expand the platform into high-value adjacent therapeutic areas.
“We are looking to really double down on tech, not just to optimize the processes they have internally, but also to create further strategic advantage through additional offerings as well as by better leveraging data,” said Bailey. “To the extent that it is relevant, we will selectively consider strategic M&A where it makes sense to continue adding capabilities in a way that synergistically positions them against that backdrop.”
Gunderson added: “We believe this is an attractive ecosystem with really strong secular tailwinds, increasing outsourced penetration and massive growth in biopharma R&D spending. It’s in part driven by increased complexity and new drugs and biologics coming to market. It really sets up the stage for how important it is for strategic and scientific storytelling. It’s really at just an all-time high in the medical education field.”
Similar investments include Baum Capital Partners-backed Level Education Group acquiring Triad in October and Leeds Equity-backed Archer Review acquiring Core Anesthesia in May.
High-growth medical specialties will continue to be prime targets for PE-backed platform M&A expansion, driven by chronic disease growth, growing data volumes sets and opportunities to expand into adjacent specialties.
The need to fill labor shortages in the medical workforce will continue to be the defining tailwind behind PE’s interest in the medical education sector. Further, demand to expand access to training programs geographically and add digital capabilities to improve content promotion and remote learning needs will be a prime driver of M&A, as well as organic growth for PE-backed platforms. Much of these investments and growth are predicted to be seen more in specific medical specialties over general practitioner care. These specialties will be characterized by high consumer demand and opportunities for PE-backed platforms to grow by expanding into adjacent healthcare markets.
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