"Believe me, you want to work in healthcare investment banking. This is what you need to know"

Investment banks are restructuring, and even the previously bullet-proof M&A divisions have become targets for cuts. If you want to work in an advisory role – either in banking or private equity – you need to develop expertise in a sector that’s growing.

For the past two years, that sector in the UK has been healthcare. Investment banks have been poaching both junior and senior employees from competitors and private equity is growing. As someone who recently switched out of M&A at a large investment bank to start a healthcare-focused private equity company, I am understandably bullish about its prospects. If you want to specialize in the sector, this is what you need to know.

1. The sector is driven by demographic changes, not market forces

Here are some demographic trends for you – in the UK, 1 in 6 people (16.4%) are over-65; this will increase to 1 in 4 (25%) by 2050. The number of over-85s in the UK will almost double by 2030. The retired-to-active ratio is currently 1:4, but is expected to fall to 1:2.5 by 2035 and 1:2 by 2050. These numbers reiterate the fact that there will be ongoing demand for care home beds, hospital beds and more specialist services. This is a prime investment opportunity

2. The NHS is changing, this is an opportunity

According to the OECD, the NHS currently faces an estimated £20bn budget shortfall over the next five years. The UK, as well as other EU nations, is facing increasing difficulty in maintaining the quality of free public healthcare. Private equity firms, asset managers and other investors therefore have a first-mover opportunity to invest in the privatisation of hospitals. And investment banks will need to be there to offer advice, structure deals and provide debt and equity financing.

3. There’s a lot to learn in a short space of time

Healthcare is one of the most diverse sectors to specialise in, and it takes time to understand the nuances of each sub-sector. As an expert of the healthcare sector, you not only understand the dynamics of a large FTSE-listed pharmaceutical corporate, but also know what drives a dementia care home. You can build a model for each and every business line for a hospital management company, but also understand the real estate component behind the valuation of a care home. As an analyst, you can get exposure to the client and work on deals that really vary from one case to the next.

4. Once you specialise in healthcare, there’s no looking back.

After just a year or two of working in a particular sector, you get branded as a ‘sector expert’. This is the unfortunate truth of investment banking and private equity. It’s crucial to do everything you can to pick a sector that has a bright future. You don’t want to be an expert in a sector that may be obsolete just few years down the line. Healthcare is one of those sectors – specialise if you can.

5. This is why healthcare is so profitable

If you look at the financials of an average hospital, care home or nursing home, both the EBITDA and net income margin tend to outclass virtually every other sector. On average, we see a 30% EBITDA margin in comparison to an industry average of 15%, as well as a 14% net income margin in comparison to an industry average of 7%. As more and more investors flock to this sector, there will be a surge in deal flow and trust me, you want to be involved.

Sameer Rizvi, CFA is the managing partner of RD Capital Partners LLP, an alternative investments and financial advisory firm that invests into European healthcare, real estate and high growth technology companies. He has previously worked as an Investment Banker at the Royal Bank of Scotland and at Commerzbank.