Private Equity continuation funds trend in Healthcare Technology in 2025

The intersection of private equity continuation funds and the healthcare technology sector is a particularly dynamic trend in 2025. This area is seeing significant activity driven by both the unique characteristics of health tech and the broader market forces shaping the private equity landscape.

Here are the key trends for private equity continuation funds in healthcare technology in 2025:

1. A Solution for Extended Value Creation in Complex Markets

Healthcare technology assets often require longer investment horizons than typical private equity investments. This is due to the time it takes to navigate:

Regulatory Hurdles: Gaining approvals from bodies like the FDA and ensuring compliance with regulations such as HIPAA is a lengthy and complex process.

Reimbursement Models: Establishing and scaling a profitable business model often depends on securing favorable reimbursement from private insurers and government programs (e.g., Medicare and Medicaid), which can take several years.

Implementation and Adoption Cycles: Selling to large hospital systems or healthcare providers involves long sales cycles and slow integration processes.

Continuation funds are a perfect fit for this scenario. They allow a GP to "hold and grow" a high-performing health tech company beyond the typical 10-year fund life. This gives the GP and the management team the necessary time to mature the company, secure regulatory approvals, and achieve a critical mass of adoption, ultimately positioning it for a more lucrative exit.

2. Focus on "Crown Jewel" Digital Health Assets

Private equity firms are not using continuation funds to exit underperforming health tech companies. Instead, the trend is to move "crown jewel" assets into a new vehicle. These are companies with:

Strong, recurring revenue models: Particularly those with a Software-as-a-Service (SaaS) component.

Proven clinical efficacy: The technology has demonstrated a positive impact on patient outcomes or operational efficiency.

Scalable platforms: The technology can be easily expanded to new markets or customer segments.

Substantial growth potential: The company is well-positioned to capitalize on mega-trends like aging populations, telehealth, and value-based care.

The continuation fund provides a fresh capital injection to fund strategic initiatives, such as tuck-in acquisitions to expand a company's offerings or to accelerate international expansion, further enhancing its value.

3. AI and Data Analytics as Key Drivers

The use of artificial intelligence (AI) and data analytics is revolutionizing healthcare, and this is a significant driver of continuation fund activity. PE firms are using these vehicles to back health tech companies that are:

Developing AI-powered solutions: These could be for drug discovery, diagnostic tools, or administrative workflow automation.

Leveraging large datasets: Companies that can effectively use patient data to improve care delivery or personalize treatments are highly sought after.

Paving the way for new reimbursement pathways: Proposed legislation, such as the "Health Tech Investment Act," which aims to create a stable Medicare payment pathway for algorithm-based services, is de-risking investment in this space and making these companies more attractive for long-term holds.

4. Increased Scrutiny and Evolving Governance

As private equity's role in healthcare becomes more prominent, so does the scrutiny from regulators and the public. This is a crucial factor shaping continuation fund deals in 2025.

State-level oversight: Several states are passing or considering legislation to regulate PE deals in healthcare, particularly those involving a "Management Services Organization" (MSO) model. This adds a layer of complexity and risk that needs to be carefully managed in a continuation fund's structure.

Antitrust and fraud enforcement: Federal agencies are ramping up their enforcement actions against anti-competitive practices and healthcare fraud. GPs must ensure their health tech portfolio companies have robust compliance programs to mitigate these risks.

Transparency and fairness: The established trend of using independent third-party valuations and advisory committees to ensure fair pricing and a smooth process for LPs cashing out is even more critical in the sensitive healthcare sector.

In summary, continuation funds in healthcare technology are a powerful tool for private equity in 2025. They provide a mechanism to maximize the value of high-potential assets in a sector characterized by long development cycles and complex regulatory landscapes, while also addressing the growing need for liquidity and distributions to LPs. The focus remains on quality assets, particularly those leveraging AI and data, but the transactions are increasingly structured with heightened attention to governance and regulatory compliance.