We recently analyzed 140 private investments in US healthcare companies from 1995 to 2014 and found that returns were 1.5 times higher than the broader public market, and, in five of eight subsectors, outstripped the US private-equity industry. That strong performance was mirrored in the return multiples that sellers achieved, which were 2.3 times for healthcare versus 1.7 times for all US private equity. An aging demographic has propelled the industry. And the scope for innovation and a steady supply of profitable businesses have made it a fertile market for private-equity investors.

Healthcare covers a wide range of businesses. Some provide services to hospitals and physicians, insurers, and drug companies; others supply products such as pharmaceuticals, biotechnologies, and medical technologies. Naturally, profit pools, margins, and growth rates vary widely among these subsectors; so do risk and returns.