Healthcare Sector

Sector that includes organizations and professionals providing medical services, treatments, and products to maintain or improve human health

Author: Aimaan Shergill
Aimaan Shergill
Aimaan Shergill
A student at the University of Toronto, where I major in Finance, Economics, and Data Science. I have held internships at Deloitte, Ontario Health, IBM, and PwC, contributing to projects in financial advisory, strategic funding, and consulting.
Reviewed By: Kevin Henderson
Kevin Henderson
Kevin Henderson
Private Equity | Corporate Finance

Kevin is currently the Head of Execution and a Vice President at Ion Pacific, a merchant bank and asset manager based Hong Kong that invests in the technology sector globally. Prior to joining Ion Pacific, Kevin was a Vice President at Accordion Partners, a consulting firm that works with management teams at portfolio companies of leading private equity firms.

Previously, he was an Associate in the Power, Energy, and Infrastructure Investment Banking group at Lazard in New York where he completed numerous M&A transactions and advised corporate clients on a range of financial and strategic issues. Kevin began his career in corporate finance roles at Enbridge Inc. in Canada. During his time at Enbridge Kevin worked across the finance function gaining experience in treasury, corporate planning, and investor relations.

Kevin holds an MBA from Harvard Business School, a Bachelor of Commerce Degree from Queen's University and is a CFA Charterholder.

Last Updated:January 31, 2024

What Is The Healthcare Sector?

The healthcare sector is the sector that includes organizations and professionals providing medical services, treatments, and products to maintain or improve human health.

The sector includes healthcare equipment, focusing on products like PPE kits and pharmaceuticals that help develop and market medical drugs and vaccinations. The healthcare sector is different from the other sectors within Finance as it is not closely correlated to the other sectors.

During times of inflation and global events such as the COVID-19 pandemic, there was a lot of uncertainty in the market, though the level of capital in the industry remained at all-time highs.

The amount of capital invested in companies that support healthcare innovation is growing significantly; in 2012, investors allocated about $1 billion of private capital into the sector compared to $28 billion in 2021.

It is also often subject to government intervention, given the close relationship between healthcare's private and public sides. One aims to maximize profits, while the other aims to maximize social welfare.

The intertwining interests of both these sectors mean that the government is often vigilant about regulating the industry and ensuring that citizens can gain adequate access to their services.

In 2021, it experienced the highest growth in deals since 2016. This was notable in the finance sector, with three of the ten largest private equity deals involving healthcare, the largest of which involved a manufacturer and distributor of healthcare supplies.

Key Takeaways

  • The healthcare sector includes organizations and professionals offering medical services, treatments, and products to enhance human health.
  • This diverse sector includes healthcare equipment, pharmaceuticals, and services, with a unique position in finance due to its lower correlation with other sectors.
  • Healthcare sector experiences government intervention due to the interconnection between private and public interests.
  • The healthcare industry comprises four main sectors: healthcare services and facilities, medical equipment manufacturers, medical services and managed care, and pharmaceuticals, biotechnology, and life sciences services.
  • Recent trends highlight the sector's adaptability and growth potential. Innovations like mRNA vaccines, diagnostics, antiviral treatments, and advancements in oncology and Alzheimer's reflect the industry's commitment to addressing health challenges.

Healthcare Sector in Finance

Within Investment Banking, healthcare looks at advising companies in the biotech, pharmaceutical, medical device, healthcare services, and healthcare IT sectors on mergers, acquisitions, and raising debt and equity capital.

Banks often split their teams into industry groups and product groups. Industry groups bring together stocks based on standard lines of business, while product groups focus on specific deal types, such as M&A transactions. This structure is an excellent example of how the industry operates.

The healthcare group executes different transactions, such as M&A, debt financing, and equity financing.

Within Banking, most healthcare companies fall into two broad categories:


  1. Pharmaceuticals, Biotechnology, and Life Sciences: An example includes companies that make patented and generic drugs using biotechnology
  2. Healthcare Equipment & Services: This includes hospitals, nursing facilities, research labs, and medical device companies

Healthcare companies often provide "essential services" with demand relatively inelastic, even during a recession. However, a significant portion of deals and financing activity within the sector is driven by larger companies acquiring small-cap companies.

The sector is heavily regulated in countries where "universal healthcare" is not provided to its citizens, such as the US.


    In recent years, U.S.-based healthcare firms have represented a significant percentage of the total industry market cap and transactions worldwide, subject to market conditions.

    Regarding classifications within banking, the Healthcare Information Technology sub-sector can also be a part of the Technology Group, and health insurance companies could be a part of the Financial Institutions Group.

    How to get into Healthcare Investment Banking

    Unlike biotech equity research or life science venture capital, you do not need an advanced understanding of healthcare or a degree in medicine to work in this group. To understand the sector well, it is necessary to have knowledge of the healthcare industry and the business models it employs.

    Having a background in healthcare can be beneficial when trying to break into the sector, as it enables you to articulate more effectively why you want to be in that industry.

    The recruitment process is similar to any other group, where candidates could attend a top undergraduate or MBA program, strive for high grades, receive relevant work experience, do good networking, and prepare adequately for the interview process.

    Candidates could expect specific healthcare-related questions during their Investment Banking interviews, such as:

    1. Which of the sub-sectors in healthcare would have the lowest WACC and why?
    2. What multiples are used for biotech companies
    3. What do Investment Bankers do in Healthcare Investment Banking?
    4. How would you value a pre-revenue biotech company with negative cash flow?
    5. Can you walk me through a transaction you learned about within the Healthcare sector?
    6. How does the cost of capital vary for each segment within the healthcare industry?

    Drivers in the Healthcare Sector

    The public and private healthcare sectors are often subject to government intervention, as private healthcare companies are motivated to maximize profit, while public healthcare companies aim to serve the community.

    Healthcare is a highly specialized field that only professionals tend to have intimate knowledge of. Therefore, healthcare professionals often act as principals on behalf of the population without technical knowledge, allowing them to make industry decisions.

    Because principals (those with technical knowledge) have information that affects the agents (those without technical knowledge), principals are expected to act in the agents' best interest.

    However, misalignment of goals and objectives can lead the principals to pursue other interests that can harm the agent.

    Even with the risks within the sector, healthcare can be a haven and growth opportunity for investors. This is because demand for healthcare is price inelastic–meaning that the market is relatively stable when prices fluctuate and are quite resistant to periods of recession and inflation.

    Innovation within healthcare, as seen in the race to develop the new COVID-19 vaccine and the shift to integrating virtual healthcare in response to the pandemic, showcases the industry's adaptability.

    The risk associated with politics and asymmetric information shows a low correlation with other sectors. Therefore, healthcare is an excellent investment for anyone trying to diversify their portfolio.

    4 Main segments of the healthcare sector

    The healthcare industry provides various services to support the community's and individuals' healthcare needs. The healthcare industry can be classified into four sectors:

    1. Healthcare services and facilities

    The healthcare services and facilities sector comprises many sub-sectors, such as Healthcare Providers and Services, Healthcare Equipment & Services, and Healthcare Technology.

    The healthcare provider and services subsector comprises companies that own, operate, and facilitate healthcare services. Some of the most prominent services included are:

    1. Hospitals: Hospitals conduct treatments, run diagnostics, and provide patients with advisory services based on their medical needs. This category includes General and acute care hospitals, district hospitals, specialized hospitals, teaching, and clinics.
    2. Nursing and residential care facilities: The care facilities provide residential care combined with either nursing, supervisory, or other types of care as required by the patient. Within this category are at-home health care services, Nursing Care Facilities, Urgent Care Centers, Mental health facilities, and developmental handicap facilities.
    3. Ambulatory healthcare services: This segment provides direct and indirect healthcare services to ambulatory patients. This category includes outpatient care centers, medical and diagnostic laboratories, Ambulance Services, and other mobile health care services.
    4. Medical Practitioners & Healthcare Professionals: This segment looks into the healthcare professionals providing services to patients, such as Medical Practitioners, Chiropractors, Homeopaths, Psychologists, Social Workers, Physical Therapists, and more.

    2. Medical equipment and hospital supplies manufacturers

    This sector includes all aspects of manufacturing a medical device, from design to development and then scale to help with ongoing process improvements.

    This sector also includes sterilizing and packaging medical equipment required for shipment. The range of medical equipment size varies from small items like band-aids to larger ones like MRI scanners.


    These companies also offer the latest medical technology products for medical equipment, hospital supplies, and healthcare-related services.

    3. Medical services and managed care

    Medical services work with companies that provide different types and degrees of services to all stakeholders in the healthcare industry; this includes medical insurance, healthcare consultants, patient financing, and more.

    The term managed care or managed health care looks at various techniques intended to reduce the cost of providing health benefits and improve healthcare quality.

    This sector includes exclusive provider organizations, Medicare, Medicaid, Healthcare Consultants, Medical Patient Financing, and more.

    4. Pharmaceuticals, Biotechnology, and Life Sciences services

    The pharmaceutical industry helps develop, produce, and market medication drugs. As a result, the industry is subject to various laws and regulations regarding patenting, testing, and ensuring drug safety, efficacy, and marketing.

    This sector includes Over-the-counter drugs, Prescription drugs, Biopharmaceutical drugs, Drug Stores, and more.

    Biotechnology looks into companies that provide research and development or manufacturing capabilities derived from living organisms, such as Genetically Modified Crops or Developing Biofuels.

    Life science services companies study living organisms and provide analytical tools for clinical testing services and research capabilities, specializing in Molecular Biology, Biochemistry, Neuroscience, and more.

    Future of the Healthcare sector

    The pandemic has shifted the global dynamic of the healthcare value chain, with greater importance for innovation and growth within the sector.

    Furthermore, healthcare enterprises have digitized their operating models to become more resilient and efficient, which has helped transform the industry.

    1. mRNA vaccines

    mRNA vaccines are genetically engineered vaccines approved in 2021, given the rise of the novel coronavirus.

    The pharmaceutical developers with the highest efficacy rate worldwide at the time were Pfizer-BioNTech and Moderna. These companies received impressive results within a ground-breaking amount of time.

    Scientists are looking into the use of mRNA in approaching other known infectious diseases, such as malaria, influenza, sexually transmitted infections, and cancer.

    mRNA therapies are likely to contribute to clinical development within oncology, as the versatility of genetically engineered mRNA holds promise for medical innovation over the next decade.

    2. Diagnostics

    In 2020, the FDA granted emergency approval to the first CRISPR-applied product, a COVID-19 diagnostic test that revealed results in under an hour.

    Innovation within this field continues to grow as we see new products, such as 10-minute blood tests and at-home rapid antigen swabs, considering the COVID-19 pandemic.

    3. Antiviral oral treatments

    Another prominent innovation caused by COVID-19 was the development of oral antiviral treatments. Launched by Merck & Co, such treatments have had the potential to reduce mortality rates amongst patients sick with the virus significantly.

    The drug soon faced regulatory issues after being announced that it could not meet the required level of efficacy as initially expected.

    In contrast, Pfizer’s Paxlovid treatment helped reduce the risk of hospitalizations and deaths in high-risk patients by 89%.

    4. Oncology – Beyond COVID-19

    The field of cancer treatments has expanded rapidly despite record-low utilization rates, as the COVID-19 pandemic was the primary concern of many pharmaceutical companies.

    Furthermore, many patients’ hesitation to enter primary care facilities such as hospitals during the pandemic also caused lower rates of diagnoses. With a 26%-51% decrease from pre-pandemic levels, the impact would have created a severe backlog in years to come.


    From a development perspective, 17 novel cancer treatments have been approved globally for 2020. Innovative therapies are often concentrated within smaller-capped companies, where emerging biopharma companies develop nearly 80% of early-stage pipelines and 66% of late-stage channels.

    5. Alzheimer’s

    2021 was a milestone year in Alzheimer’s research, as the FDA-approved Biogen and Eisai’s drug Aduhelm had a notable impact on the industry, subject to regulatory scrutiny and hurdles in commercial adoption.

    However, the drug has a volatile road ahead, facing regulatory scrutiny and hurdles in commercial adoption.

    6. Medtech

    Medtech has seen stable growth with the advancements of portable MRI (magnetic resonance imaging) machines, ACL (anterior cruciate ligament) -healing tools, and Alzheimer’s blood-based diagnostics, among others.

    Innovation is likely to grow in this space at a stable rate, from precision surgical tools and non-invasive procedures to the growing trend of wearable tech.

    7. Technology in healthcare

    Despite constant innovation within the healthcare sector, there is still a lot of scope for improving products and services.

    Using artificial intelligence (AI) in clinical trials, gene mapping, and technology-assisted surgery has grown exponentially over the past few years.

    Early adopters of technology in clinical development have looked at the importance of machine learning algorithms to learn about new diseases 30% faster than human pathologists.

    Given the average go-to-market rate of 5-10 years for new drugs, AI has the potential to expedite drug discovery and development.

    Trends in the Healthcare Sector

    Healthcare companies have turned their attention to integrating technology to help transform the sector by delivering their products and services.

    Over the past few years, tech companies have focused on applying their expertise to solve problems caused by the COVID-19 pandemic.

    The pandemic has helped accelerate the digitization of the healthcare industry. According to the HIMSS Future of Healthcare Report, 80% of healthcare providers plan to increase their technology and digital solutions investments over the next five years.

    Where we can see the sector leveraging trends in different areas, such as:

    1. Demographics 

    Naturally, as the population ages, the requirement for healthcare-related services will also increase. It is estimated that between 2015 and 2050, the world population over 60 years will double from 12% to 22%, adding to the sector’s demand.

    The past few years have been detrimental to the importance of the healthcare industry because of the Covid-19 pandemic. However, these two trends have helped shape the industry by amplifying demand and showing the growing importance of innovation within the field.

    2. Government Policies and Regulations

    As mentioned before, the government is highly involved with healthcare in most countries where healthcare is publicly funded. An example of a privatized healthcare system is the U.S., where the government acts as a regulator rather than the sole healthcare provider.

    An example of where healthcare is privatized is the U.S.; on the other hand, the U.K. government acts as the sole healthcare provider.


    Governments can help set prices, reimburse medication, and approve new transformative drugs, devices, and treatments. They can also fund and incentivize significant research and development efforts through grants.

    3. Product Pipelines and Innovations

    Most newly developed medicines and devices are protected by patents and intellectual property rights for a fixed period. Therefore, companies constantly innovate and develop new products to compensate for lost revenue when their patents expire.

    Even generic drug companies think about their pipelines and different avenues they can venture into by monitoring expiring patents and planning new, lower-cost manufacturing processes.

    4. Broader Economic and Credit Conditions

    Due to its perceived low correlation with other industries, healthcare is often classified as a “defensive” sector, suggesting that it tends to hold its value relatively well during economic contractions.

    We experienced such trends in the 2008 Financial Crisis and the COVID-19 pandemic when many large healthcare companies emerged victorious.

    Companies In The Healthcare Sector

    The ten largest healthcare companies in the world based on 2021 revenue include:

    1. CVS Health: $268.7 billion
    2. UnitedHealth Group: $257.1 billion
    3. McKesson: $231 billion
    4. AmerisourceBergen: $189.9 billion
    5. Cigna: $160.4 billion
    6. Cardinal Health: $152.9 billion
    7. Anthem: $121.9 billion
    8. Centene: $111.1 billion
    9. Johnson & Johnson: $82 billion
    10. Humana: $77.1 billion

    Investment Banks within the Healthcare Sector

    The bulge bracket banks within the industry possess the highest net-worth deals regarding raising capital or M&A advisory.

    The bulge bracket banks within this sector include

    Some mid-market and elite boutique banks partake in smaller volumes and sizes of transactions per year. These banks include

    Within healthcare, many banks could be involved in facilitating the same deal. This is because high-profile deals face fierce competition between the large banks to reduce, often leading to a bidding war.

    Healthcare Investment Banking Dynamics

    Bulge Bracket investment banks maintain a significant market share of the healthcare investment industry, partly due to their diversification and ability to handle the price fluctuations of healthcare companies, particularly during periods of drug pricing or FDA and USDA approvals.

    Given that healthcare expenditures as a percentage of U.S. GDP are expected to rise faster than in the past decade, big banks have positioned themselves to take advantage of such rapid growth.

    Unlike smaller banks, which cannot commit to the capital required as a safety net when signing large healthcare companies due to their lack of diversification in other sectors and industries.

    Although larger firms are often more successful in winning large-scale transactions, smaller firms focus on smaller and more specialized market sectors, allowing them to be key players in healthcare investment banking.

    The global investment bank Jefferies is at the top of the list, followed by Guggenheim Partners and Greenhill & Co. These firms have a strong history and a growing presence in healthcare.

    Greenhill & Co., in particular, has broken into the top ten investment banks league rankings, allowing it to compete for some larger-scaled transactions. Cowen Inc. is another up-and-coming brokerage investment bank with two-thirds of its revenue generated from the healthcare sector.

    Firms are competing within the sector to grow their practice with talent specialists in both the medical and technology industries. Banks are getting heavily involved in the healthcare sector as the industry is immune to disruptions caused by the Covid-19 pandemic.

    Private Equity Firms Within Healthcare

    The most active private equity firms within this sector since 2017 by deal count include: 

    1. Shore Capital Partners (Chicago): 240
    2. Audax Group (Boston): 170
    3. Waud Capital Partners (Chicago): 130
    4. Webster Equity Partners (Waltham, Mass.): 121
    5. EQT (Stockholm, Sweden): 110
    6. Linden Capital Partners (Chicago): 95
    7. Sheridan Capital Partners (Chicago): 79
    8. KKR (New York): 79
    9. TPG (Fort Worth, Texas): 77
    10. HarbourVest Partners (Boston): 77

    Healthcare Sector Transactions in 2021

    Towards the end of 2021, the Private Equity firms Blackstone, Carlyle, and Hellman acquired Medline in the largest leveraged buyout deal in over a decade. The deal was valued at around $30 billion, including debt, with a $17 billion equity contribution.

    The group of firms bought a majority stake in Medline, which at the time was one of the largest manufacturers and supply chain leaders of healthcare products and also reported $17.5 billion in revenue in 2020.

    The company has a wide network of operations worldwide, spanning more than 110 countries in the U.S. and encompassing its largest market share.

    In 2021, Medline increased its domestic operations due to the change in market trends caused by the COVID-19 pandemic, which boosted demand for products such as hand sanitizers and face masks.

    By helping the company diversify its business in a post-pandemic world, it committed $17.5 billion toward U.S. supply chain expansion, broadening its portfolio of respiratory health products.


    According to the CEO of Medline, Charlie Mills, the acquisition from some of the world’s most successful private equity firms would enable them to accelerate this strategy while preserving the company’s family-led culture.

    While the new private equity investors would own a majority share in the company, Medline’s founders would remain the company’s largest single shareholder.

    Microsoft acquires Nuance Communications Inc.

    Towards the end of 2021, Microsoft acquired Nuance Communications Inc., a market leader in conversational AI and cloud-based ambient clinical intelligence used by healthcare providers.

    The deal was valued at $19 billion, marking the software company’s second-largest acquisition after buying LinkedIn in 2016 for $26 billion. The acquisition includes $3.7 billion worth of Nuance’s net debt, which Microsoft assumed.

    Nuance is widely known in the tech sphere to be the company that helped make Apple’s Siri, though its voice recognition and augmentation are also used in many other ways within the healthcare industry.

    Nuance’s technology is used by more than 55% of physicians, 75% of radiologists, and 77% of U.S. hospitals.

    By integrating with Microsoft Cloud, the company will look to address the needs of the rapidly transforming and growing healthcare industry. The company also had a 37% increase in revenue in 2020.


    Microsoft and Nuance have worked on artificial intelligence software that helps doctors record conversations with patients and integrate them into electronic health records. In 2019, the two companies announced they were collaborating to use technology combined with AI, automation, and cloud computing to create an exam room experience where the clinical documentation “writes itself.”

    Siemens acquires Varian Medical Systems

    In April 2021, Siemens AG, the largest industrial manufacturing company in Europe, acquired Varian Medical Systems, an American radiation oncology treatment and software maker, for nearly $16 billion.

    The takeover is a pivotal next step in the advancement of cancer research. Varian is now serving a new business segment within Siemens Healthineers, acting as a pillar in the company’s “Strategy 2025.”

    “Strategy 2025” is expected to produce nearly $360 million in cost-cutting and research advancement strategies annually by the end of 2025. Varian would help integrate their advanced knowledge in linear accelerators, radiosurgery devices, and proton therapy suites.

    Within five-and-a-half months following the finalization of Siemens Healthineers’ deal to absorb the radiation cancer therapy provided by Varian Medical Systems, the acquisition has added value of more than a billion dollars to the company’s bottom line.

    This added value helped the company post record revenues of nearly $18 billion for its 2021 fiscal year.

    Researched and authored by Aimaan Shergill | LinkedIn

    Reviewed and Edited by Aditya Salunke I LinkedIn

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