Hillhouse’s Marcel Lacaze: European healthcare pipeline ‘promising’ in 2024

'Though buyer-seller expectations on price are still adjusting slightly, financing conditions are stabilising, and we expect to see many high-quality companies, previously on pause for the right moment, gearing up for sale.'

Marcel Lacaze, Hillhouse
Marcel Lacaze, Hillhouse

The next instalment in our outlook Q&As for 2024 focuses on healthcare, as PE Hub Europe hears from Marcel Lacaze, managing director at Hillhouse.

Hillhouse is a global investment firm with a strong focus on Asia that has recently opened an office in London to serve as its European base, in addition to its offices in New York, Beijing, Hong Kong and Singapore.

Its European investments include Philips Domestic Appliances (renamed Versuni) in the Netherlands, Scotland’s Loch Lomond Whiskies and Norwegian hydrogen company Hystar.

How do you expect the first six months of PE dealmaking in 2024 to compare with the last six months of 2023?

The European healthcare sector slowed down noticeably in 2023, largely in response to a more challenging financing environment and some post-covid adjustments. Though PE firms were under pressure to deploy, many deal processes stalled or failed.

Over the past 12 months, many healthcare companies have continued to re-adjust to reality post-pandemic. Following a period of unusually high profits and subsequent investment during the pandemic, the sharp decline in investment volumes and a tightening macroeconomic backdrop since have presented challenges to certain sub-sectors, including CROs, CDMOs and biotechs.

However, 2024 presents a brighter picture. Though buyer-seller expectations on price are still adjusting slightly, financing conditions are stabilising, and we expect to see many high-quality companies, previously on pause for the right moment, gearing up for sale. The chatter in the market from GPs, bankers and strategics is more optimistic and from our perspective, the pipeline for European healthcare in 2024 looks promising.

What will be the most important trends affecting your healthcare dealmaking in 2024?

When considering investment opportunities in 2024, it is important to keep in mind that the period of market normalisation post covid-19 is ongoing. We will continue to see a shake-out of certain sub-sectors, companies that may have overinvested in certain areas during the pandemic, as well as those which have suffered from the impact of the contraction in biotech ventures and IPO funding.

However, there are multiple macro and thematic trends that give us cause for optimism in 2024. For example, the growing complexity of next-generation therapeutics, the globalisation of drug development, a continued shift towards outsourcing from biopharma, and an uptick in outbound healthcare activity from Asia, are all creating favourable tailwinds for dealmaking. Given our deep sector expertise and global network, Hillhouse is well-positioned to take advantage of these trends.

What kinds of deals can get done today?

We are seeing attractive companies come up for sale across the size spectrum, from multi-billion mega-deals to the smaller end of the market. However, the IPO market remains difficult. This together with the divergence in buyer-seller expectations on price, combined with the fact that there is a looming pipeline of attractive assets coming in 2024, means that only few selected deals get done today.

Overall, the healthcare sector is pretty recession-resilient. Within this, we are seeing pockets of strength such as pharma services – though the post-pandemic biotech weakness is still impacting some areas of pharma, particularly at the pre-clinical and early stages. There is a strong pipeline of opportunities in the kind of pharma services deals that we are seeking in the areas of both small and large molecule CDMOs and CROs with strong management and differentiated expertise and growth potential.

What’s keeping you up at night?

Geopolitical developments over the past 12 months have had a range of knock-on impacts for the healthcare sector, and ultimately patient care. Effective healthcare requires the most efficient, coordinated international route to develop drugs and ultimately alleviate patient suffering. Over the next 10-15 years, many innovative drugs will come from Asia – yet for patients to reap the rewards on a global basis, these drugs need to be offered across markets. Our ambition within our portfolio is to support global platforms to ensure that drug development and launches, wherever they arise, are happening expeditiously and efficiently on a worldwide basis, to ensure that patients receive the best medicines as fast as possible.

What are you looking forward to most in 2024?

A return to more ‘normal’ investment conditions will be welcomed across the industry, and we are excited to get back to an active deal pace following a dry market in 2023. Expanding our team will be another priority over the year ahead, following the opening of our new London office and European base. We believe that our proven strategy of partnering with healthcare businesses to add value beyond capital will stand us in good stead for dealmaking in 2024.

Editor’s note: PE Hub Europe will be running 2024 outlook Q&As with senior private equity dealmakers through December. You can read the previous story in the series with Bain Capital Tech Opportunities’ Darren Abrahamson here.