Is private equity fleeing U.S. healthcare for China and India?

Global private equity investment in the healthcare industry has been shrinking for a few years now, but the dropoff has been felt particularly in Europe and the U.S. Asia, on the other hand, is vacuuming up PE dollars lost to the west.

According to a new report from London-based research and consulting firm GlobalData, the total value of the world’s healthcare private equity deals decreased significantly from $57.7 billion in 2007 to $19.8 billion in 2013. Deal activity declined in Europe by 30.5 percent, from 59 deals in 2012 down to 41 in 2013. North America witnessed only a minor 2.5 percent growth, from 80 deals in 2012 to 82 in 2013.

But as PE investment slows in the U.S. and Europe, PE interest in emerging markets, such as India and China, has grown. The GlobalData report finds the volume of healthcare PE investment in Asia-Pacific has increased by an amazing 125.8 percent between 2011 and 2013.

The report highlights multiple factors as responsible for the reduced average value of completed PE-backed deals, particularly over the past three years in the U.S. and Europe. These include ongoing healthcare reform in Western Europe and North America, as well as pricing pressures caused by budget deficits, high healthcare expenditures, and growing national debt.

"This year is expected to be crucial for the U.S. healthcare sector, because most of the Affordable Care Act’s provisions will become effective," says Joshua Owide, GlobalData's Director of Healthcare Industry Dynamics. “Investors are therefore being cautious in putting money into the U.S. healthcare industry."

He says that for firms that do choose to invest in the U.S. sector, healthcare service providers, such as clinics and managed care facilities, as well as outsourcing companies, including both contract manufacturing and contract research organizations, have emerged as "relatively safer" risk options.