Prevailing market conditions created a low deal volume for the life sciences industry in the first half of the year, with limited incoming investments, capital raising obstacles, and prolonged exits. But in Q3, biopharma saw a surge in M&A activity, and the Federal Reserve has lowered interest rates for the first time in nine months — two positive signals in the dealmaking space.
Larger deals (greater than $1B) did occur in life sciences in H1, but they did not reflect as many PE acquirers. As of June 30, 2025, S&P Global reported that global private equity (PE) funds collectively held nearly $2.5 trillion in dry powder. While PE funds are keen to deploy it, relatively high interest rates and a disconnect between buyer and seller valuation expectations mean funds have held off on deploying this committed capital.
BDO’s 2025 Private Equity Survey found that fund managers that invest in life sciences businesses are prioritizing platform acquisitions — initial purchases of mature, market-leading companies in life sciences — and opportunities for roll ups in life sciences, potentially opening avenues for companies to seek new investment. While funding from venture capital remains challenging to secure, certain life sciences companies, especially those that are more mature and generating revenue, may want to explore whether PE backing aligns with their business and growth goals.
PE funds have historically invested in life sciences companies in the medical device, diagnostics, and software as service (SaaS) sectors, which are currently generating revenue or expected to generate revenue in the short term. Generally, PE firms prefer businesses with strong cash flows — meaning they will likely be less interested in biotech and pharma start-ups still in the early stages of drug development. However, this does not necessarily mean opportunity doesn’t exist for start-ups, who could be included in roll up style acquisitions. Fund managers may be particularly interested in AI and technology investments as the life sciences industry continues to innovate.
Life sciences companies interested in seeking private funding should begin by gaining an understanding of market trends and PE investment priorities in 2026.
Where and How Life Sciences-Focused Fund Managers are Planning to Invest
According to our 2025 survey, 28% of fund managers who invest in life sciences businesses plan to pursue platform acquisitions — the most common response. This focus could indicate that fund managers are seeking acquisitions for a “buy and build strategy,” which can help increase value through the acquisition of companies with complementary offerings, such as a software company that could complement a medical device manufacturer.
Which Kinds of Assets Do You View as the Most Attractive for Investment in the Next 12 Months?
In addition to platform acquisitions, nearly half (43%) of fund managers indicated they view companies new to outside investment as attractive targets. They likely believe that there will be more opportunity for value creation within these companies.
PE firms’ changing preferences reflect a broader shift in attitudes toward value creation. These changes demonstrate PE’s interest in moving into areas that were previously seen as the territory of venture capital firms.
How Life Sciences Fund Managers are Fueling Growth
When asked which revenue growth strategy they wanted their portfolio companies to prioritize, one-fifth (22%) of life sciences PE fund managers said cross-customer revenue opportunities.
This approach could create new opportunities for fund managers with life sciences portfolio companies that still have drugs and/or devices in development. While they await approvals, companies may be able to offer capabilities to other portfolio companies within their ecosystem. For example, Portfolio Company A has a drug that won’t be on the market until mid-2026. In the meantime, Portfolio Company B can leverage Company A’s sales team to support assets that it has readily available.
This approach has important implications for life sciences organizations that are currently seeking PE investment. In preparation for the sale process, companies should build a business case that clearly articulates how their offerings and capabilities fit within a PE firm’s existing ecosystem.
What Cost Reduction Strategies Do You Want Your Portcos Prioritizing in the Next 12 Months?
Fifty-five percent of life sciences PE fund managers would like their portfolio companies to prioritize cost reduction in research and development (R&D). Reducing expenses in these controllable areas could help extend the cash runway for life sciences companies. This could support cost control efforts while private equity firms wait for better valuations in the coming year, but it is important for firms and their portfolio companies to consider their strategic growth goals.
The Exit Outlook
As many PE firms hold off on exits and wait for better public market conditions, some life sciences-focused fund managers are exploring extended holding periods as an alternative to an exit. One-fourth (25%) of fund managers indicated that they are most likely to pursue exits through continuation funds over the next 12 months. Continuation funds are designed to extend the holding period of one or more assets from an existing fund that has reached its lifespan.
The industry is familiar with prolonged exits, as shown by the past four years of low IPO activity, a decline in licensing deals, and infrequent acquisitions. But managers could also seek a continuation fund if a drug in development within their portfolio company needs more time before Food & Drug Administration (FDA) approval to align with regulatory timelines rather than market pressures.
In Terms of Deal Pricing, Where Do You Expect Assets to Trade in 12 Months Versus Where They Are Trading Today?
Fund managers’ cautious approach to exits is balanced by an underlying confidence in future asset performance. Over half (52%) of life sciences PE fund managers expect assets to trade 1-9% higher in the next 12 months than they are now, and one-fourth (27%) expect them to trade 10-24% higher. But even if IPOs pick up, expectations for future asset performance rest on the assumption that several key macroeconomic factors — including regulatory clarity and tariff policies — will stabilize.
Looking Ahead
As economic conditions remain mixed, PE backing may help life sciences companies access the cash they need for long-term growth.
Companies seeking investment have a unique window of opportunity: As the industry waits for the market to level off, consider how your company can differentiate itself to outside investment by highlighting specific service offerings, drugs and devices, and existing infrastructures. These assets can become even more valuable when fund managers are looking to realize growth during extended holding periods.
Curious about the state of PE? Check out our 2025 Private Equity Survey to prepare for the rest of 2025 and the year ahead.