Policy and innovation come to the fore in an evolving healthcare private equity landscape

Following discussions with leading investors, operators and advisers at the HPE Europe conference, McDermott, Will & Schulte shares key takeaways on the trends shaping healthcare private equity dealmaking, from regulatory developments and policy shifts to innovation-driven growth opportunities across the sector.

The European healthcare sector has demonstrated resilience in a challenging private equity landscape.

Fundraising in the region has proved more robust than in other geographies, while healthcare deal activity has remained relatively stable despite global volumes declining since 2021.

Last year was particularly strong for European healthcare M&A, with pharmaceuticals and biotech, alongside healthcare services, emerging as the most active areas for dealmaking.

However, this does not mean business as usual.

Deals have come under pressure in recent years, with buyers facing less visibility over who else is at the table, broken auctions and exclusivity agreements that are either not forthcoming or prove meaningless.

In this environment, building strong relationships with sellers and management teams has become all the more important. Conviction is key, particularly when traditional deal processes offer less certainty.

The exit environment presents another challenge.

Strategic buyers accounted for 51 per cent of exits in the first three quarters of 2026, reflecting the importance of corporate acquirers in a context where exits are difficult.

Healthcare services, pharmaceuticals and pharma services are attracting particular strategic interest as companies seek to enter new segments through M&A.

Strategic buyers can offer sellers advantages, including a lower cost of capital and the potential for synergies.

Nevertheless, maintaining a range of potential exit routes is important for sellers. In an uncertain market, flexibility can be the key to achieving a successful transaction.

Policy and regulation move to the forefront

Beyond deal dynamics, geopolitical developments and policy shifts are having a growing influence on investment decisions, and we will only see that increase in 2027.

Due diligence processes are adapting accordingly. Previously, policy considerations might have been treated as a single workstream within a broader review.

Today, policy is increasingly being broken down into its implications for commercial and operational levers and incorporated across all due diligence workstreams. Policy and regulatory risk has understandably become a tier-one consideration for investors.

To zoom in on one particular policy development, the US administration’s Most Favored Nation (MFN) policy, which seeks to benchmark domestic drug prices against those in peer countries, is beginning to take clearer shape.

Around 17 companies have signed confidential agreements securing tariff exemptions in exchange for MFN pricing arrangements covering Medicaid, new drug launches and direct-to-patient offerings.

These agreements are time limited, and important questions remain. Investors will need to assess whether the administration introduces further drug-pricing regulation and how global pharmaceutical companies respond by rethinking their pricing architectures, launch sequencing and portfolio priorities.

Of course, policy changes can influence commercial strategies, supply chains and the attractiveness of individual assets, making it increasingly important to understand how regulatory developments may affect a company’s future performance.

A poll of delegates at our landmark HPE Europe conference in September highlighted trade realignment and supply-chain vulnerabilities, alongside shifting reimbursement and drug pricing, as the most concerning areas of policy risk.

These concerns underline the need for investors to look beyond traditional financial and operational metrics when evaluating healthcare businesses.

Innovation is changing market dynamics in the life sciences

Technology is another important factor shaping investment opportunities in life sciences. The majority of companies in the sector are now developing AI tools to support drug discovery and development, with significant progress already being made.

New technologies are also helping companies lower manufacturing costs and improve the speed and efficiency of their processes.

The next area of focus is likely to be shortening clinical trial timelines. Alongside this, personalised medicine is becoming an increasingly tangible prospect, potentially creating further opportunities for innovation.

Despite these advances, transaction activity remains constrained by a divergence between buyer and seller expectations.

A bifurcation of bid-ask spreads has limited sponsor-to-sponsor dealmaking over the past year, except in cases where transactions have been highly structured.

Private equity investors have instead concentrated on take-private transactions and carve-outs, while pharma services are showing signs of recovery.

These dynamics reflect a market in which opportunities remain available, but where transaction structures, valuations and the ability to identify areas of alignment are particularly important.

Opportunities ahead for nimble players

Drug pricing pressures, constrained healthcare budgets and looming patent expirations mean generics are likely to remain a focus for European life sciences investors.

At the same time, attendees at HPE Europe identified opportunities across medtech and innovative pharmaceuticals, particularly in oncology and immunology.

The continuing impact of GLP-1 drugs is also affecting certain sectors and influencing investment considerations.

When delegates were asked to identify the most attractive life sciences investment opportunities, innovative medicines, medtech, and wellness and longevity emerged as the leading subsectors.

So, despite encouraging signs as to the ongoing strength of the European health sector, we are likely to see continued headwinds as investment decisions become more complex, shaped by evolving deal processes, strategic buyers, geopolitical uncertainty and rapid technological change.

For investors, technological progress may create new opportunities, but translating innovation into attractive investments still requires careful assessment of the wider policy environment.

Those best positioned to navigate this environment will be those who remain alert to opportunities across an increasingly diverse life sciences landscape.