Large amounts of capital still to be deployed in life sciences sector, says RSM UK

28 June 2023

Private equity buyouts in the UK healthcare sector including life sciences increased 14%* in Q1 2023 and remain ahead of pre-pandemic levels, even in the face of economic headwinds. With high levels of capital available to be deployed, its expected private equity interest will continue to be elevated, says RSM UK.

The life sciences sector remains resilient, helped by interest from investors, despite the current economic uncertainty and challenges around high interest rates, sourcing talent, and a shortage of lab space. However, there has been a general slowdown of deal activity in the sector after the boom during the pandemic. 

Public market financing has been on a downward trend since its 2020 peak, while private financing, particularly private equity, has remained more stable. Private equity buyouts (including add-ons) in the UK healthcare sector increased to 33 deals in Q1 2023, up from 29 in Q4 2022. Venture capital is the most common form of investment, peaking at 119 deals in Q2 2021; but dropped from 101 in Q4 2022 to 75 in Q1 2023. 

RSM UK’s recent ‘The Real Economy Report’ suggests that private equity continues to be the most popular finance route to raise capital and ensure growth. It found that almost half (47%) of middle market businesses expect to use private equity capital in the next year, up from 36% in October 2022, while a quarter (26%) of businesses intended to use public markets to raise funds.

Laragh Jeanroy, co-head of life sciences and office managing partner in Cambridge and Bury St Edmunds, said: ‘The life sciences sector has proven to be strong in the face of a challenging economic climate. The pandemic played a big part in raising awareness of the potential growth opportunities in the sector, and investors are continuing to jump on the bandwagon post-pandemic. So, while public financing has dipped, private equity is filling the gaps in funding. The appetite is still there, but businesses are having to shift where they get their funding from.

‘The sector is also a big investment area for the government. It has a highly skilled workforce, masses of innovation and is pivotal in the development of cutting-edge technology, meaning it is a big contributor to the UK economy and is central to achieving the government’s ambition to become a ‘science and technology superpower’.’ 

The government recently unveiled a £650m life sciences growth package, including plans for improving rail links between the ‘Golden Triangle’ cities of Oxford, Cambridge and London. It also addresses the need for additional lab space, which is currently holding back the sector. 

Laragh Jeanroy added: ‘Government intervention will boost confidence and cement its backing for the sector, which in turn helps to attract further funding. There is still a large amount of cash reserves in the private market, which offers a big opportunity for life sciences companies seeking investment. The availability of funds through private equity means investors can support promising projects in the sector.’

*Analysis of data from Pitchbook Data Inc by RSM UK

Laragh Jeanroy
Office Managing Partner – Cambridge and Bury St Edmunds, Co-Lead of Life sciences
Laragh Jeanroy
Office Managing Partner – Cambridge and Bury St Edmunds, Co-Lead of Life sciences