What is Healthcare Private Equity?

Healthcare private equity refers to the practice of an investor or a group of investors investing directly in a privately owned healthcare company. Private equity investment does not take place on the open market, but it instead usually consists of a firm that specializes in equity investments taking over a struggling company or buying a major portion of it. Such an investment is done with an eye toward possibly reselling the company down the road or taking it public on the open market. In the case of healthcare private equity, firms concentrate on all companies associated with the healthcare industry.

The healthcare industry is one of the most consistently booming sectors of the market, as technology brings more options to the table for investors seemingly every day. Of course, the changing technology and various new healthcare laws make it a difficult industry to pin down. Many investors focus their stock market investments on healthcare companies, but some wealthy investors may wish to take a more active role in the process. These investors usually form the backbone of the healthcare private equity industry.

Private equity usually takes place when a company that is trying to grow its business or is struggling to survive in a competitive market reaches out to investors for help raising capital. Such companies aren't usually traded on the open market, but they are on the radar of private equity firms devoted to these opportunities. In the case of healthcare private equity, the company in question will be involved in some aspect of the healthcare industry.

At that point, the equity firm and the company will begin negotiations on how much equity in the company the firm will have and what the selling price will be. Some firms look to play active roles, making decisions on management hires for the company or on what direction it should take. Other firms simply take a passive role, providing the capital and then reaping rewards when the company is resold or goes public via an initial public offering.

Equity investors usually have significant capital at their disposal, and teaming up with a healthcare private equity firm allows them to have their funds managed by professionals who specialize in this process. The firm may spread its investment all over the spectrum of the healthcare industry or focus on one specific facet of the industry, like diagnostic services or life sciences. In addition, equity companies may be devoted to lower or mid-market companies, or they may have the wherewithal to perform buyouts on some of the largest companies on the market.