The Opportunity being Missed in UK Healthcare Buyouts

For years the European Investment Fund (EIF) was a linchpin of new funds setting up in the United Kingdom (UK). A subsidiary of an EU institution, the well-funded EIF was an early investor in the funds of many UK-based managers including such repeat healthcare and life sciences investors as Abingworth Bioventures, Sovereign Capital, and Merlin Biosciences. It also made large commitments to more established managers moving into the area of healthcare, like a commitment to Advent’s debut life sciences fund. It was a repeat investor in UK-based generalist funds with healthcare exposure such as CBPE, NorthEdge, and Livingbridge. 

The EIF’s support had a multiplier effect on fundraising too, as the validation signaled by a commitment from the EIF often encouraged other limited partners to commit to a fund. This was effective at ‘crowding in’ capital from the private sector locally and from abroad. Abingworth Bioventures’ third fund, the last UK fund to receive investment from the EIF with details available on Preqin, saw additional investment from pension funds, foundations, and insurance companies based in the US, Germany, Switzerland, and the UK.

Overall these funds have generated good returns and so the EIF programme has been a net contributor to EU coffers. Support by the EIF enabled a new manager to raise their first and second funds, following which they typically had enough track record to continue raising institutional capital without state sponsorship by the EIF. 

Since Brexit the UK government has tried to fill the void left by the EIF – but has left a crucial area unaddressed

The day Brexit took effect the UK no longer fell within the EIF’s remit. In practice, commitments to new UK funds tapered off when it became clear that Brexit might become a reality. The UK government’s solution has been to grow a replacement for the EIF in the form of the British Business Bank (BBB), first launched in 2014. This has been a partial success, with the BBB proving very active in the area of life sciences. The BBB has funded 3 early-stage funds with UK healthcare exposure – Zinc VC, Longwall Ventures, and Epidarex Capital.

But the change in funding from the EIF to the BBB came with a change in strategy, away from investing across the private equity spectrum and towards exclusively early-stage venture capital (VC). 

This may change as the BBB develops – it has only been going for 11 years and continues to evolve its strategy in partnership with UK plc. The EIF is 20 years older – established in 1994 and now 31 years old. The EIF is larger and better-financed than the BBB, as well as being part of the European Investment Bank (EIB). The EIB is almost 70 years old, has 4,273 employees and had a balance sheet of EUR 556bn in 2024.

Notwithstanding its smaller organizational scale and age, in recent years the BBB has put more into private equity markets than its counterpart the EIF, adjusted for the size of the relevant economies (UK vs EU). However, the UK government’s decision to prioritise VC to the exclusion of buyouts and growth has left a gap in the UK funding landscape for healthcare businesses after the very early stage. Not only have new healthcare buyout investors missed out on government backing to get a first fund going, they have lost out on the international capital which that backing often attracted alongside.

This has left a funding gap – and an opportunity for private sector investors to step in

The result has been the loss of a core state sponsor in the UK for new private equity managers in the healthcare buyout and growth capital arena, compounding an already difficult fundraising environment. This has added to the widely-acknowledged funding gap in the UK for businesses seeking capital after early-stage venture rounds. It is these small buyouts and growth stage investments which boost the SMEs often described as the growth engine of western economies. It’s been well-publicized that managers get the best returns in their first one or two funds. Might the door be open for adventurous healthcare investors in the private sector to pick up the opportunity missed by the UK’s government following Brexit, and secure good returns from new managers hungry to raise a first healthcare buyout fund but struggling to find an anchor?

Photo: Wong Yu Liang, Getty Images

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