Nordic Capital's Healthcare Investment Strategy Shifts

In Brief:

Healthcare costs now consume up to 20% of U.S. GDP and are growing at twice the rate of inflation, creating what one private equity executive calls a "national security issue" that threatens America's spending power on defense and other priorities. Daniel Berglund, Head of U.S. and Co-Head of Healthcare at Nordic Capital, argues that this unsustainable trajectory demands a fundamental shift toward technology-driven solutions and value-based care models. Speaking on the Private Markets 360 podcast, Berglund detailed his firm's strategic pivot from healthcare services to complex healthcare products, citing better returns and reduced macro sensitivity. With over $300 billion trapped in pharmacy benefit manager inefficiencies and administrative costs averaging $100 per American monthly, Berglund sees massive opportunities for technology to solve systemic problems while generating strong investment returns.

Big Picture Drivers:

• Healthcare Cost Crisis: U.S. healthcare spending has reached 17.5-20% of GDP, growing at twice the inflation rate

• Technology Disruption: AI and digitalization are becoming essential for healthcare efficiency and cost reduction

• Market Consolidation: PBMs and insurance companies have created $300 billion in distribution inefficiencies

• Regulatory Pressure: Bipartisan political attention on PBM power and healthcare cost control

Key Topics Covered:

• Investment Philosophy: Nordic's shift from healthcare services to complex healthcare products and technology

• Deal Sourcing: 83% of deals come from multi-year "shadow portfolio" relationship building

• Financing Strategy: Growth buyout model with debt reduction to enable expansion

• Market Opportunities: PBM disruption, precision diagnostics, and value-based care expansion

Key Insights:

• Administrative Waste: Every new patient visit requires approximately 25 feet of paperwork when laid end-to-end, contributing to $100 monthly administrative costs per American.

• PBM Inefficiency: The "gross-to-net bubble" in drug pricing has exploded from $30 billion to $300 billion over the past decade, with rebates now exceeding total branded pharma revenue.

• Strategic Value: Post-COVID investment success requires companies to have strategic importance that attracts large buyers, not just good financials.

• Growth Focus: Nordic's portfolio companies grow at more than twice the average rate of healthcare private equity through targeted equity deployment.

• Technology Integration: Companies must invest in AI to help customers achieve the efficiency needed to meet societal demands for lower healthcare costs.

• Precision Medicine: Cancer diagnostics are evolving to monitor treatment progression rather than just initial diagnosis, potentially reducing drug overuse.

Memorable Quotes:

• "Something to the tune of 50 to 60% of all deals historically have been healthcare services and and Nordic we have been invested there too and with great success but having said that we're really returning to our roots as a firm" - Daniel Berglund, explaining the industry's historical focus on healthcare services and Nordic's strategic shift away from this approach

• "We found with healthcare services is that the market is much more dependent on the overall macro environment especially the interest rate environment" - Daniel Berglund, describing why Nordic moved away from healthcare services investing due to macro sensitivity

• "We usually spend a couple of years where we are following the company developing our thesis developing our advisory network and developing our creation plan until they become actionable for us" - Daniel Berglund, explaining Nordic's patient, multi-year approach to deal development before making investments

• "I cannot stress enough the importance of investing into AI for our portfolio companies" - Daniel Berglund, on technology's role in achieving healthcare efficiency

• "You obviously need good financials for a company to be sellable. But even more importantly, you need the companies to have a strategic direction and a strategic importance that attracts the large strategic buyers" - Daniel Berglund, explaining post-COVID investment criteria

• "They're really trying to be a modern version of Edison, finding a way to digitally produce light to this massive problem in this massive market" - Daniel Berglund, describing how companies like Integra Chain are bringing transparency to the opaque pharmacy benefit manager rebate system

The Wrap:

Nordic Capital's strategic evolution reflects broader healthcare investment trends toward technology-enabled solutions that address systemic inefficiencies rather than traditional service consolidation plays. As healthcare costs threaten fiscal sustainability, private equity firms with deep sector expertise are positioning themselves as partners in necessary market transformation, betting that companies solving real societal problems will generate superior returns while attracting strategic buyers regardless of market conditions.