Key Takeaways from the McDermott Will & Emery 12th Annual Health Care Services Private Equity Symposium
This month, McDermott Will & Emery, a leading provider of legal services, hosted its 12th annual Health Care Services Private Equity Symposium. Over the years, this conference has grown into a must-attend event for dealmakers and executives interested in healthcare services transactions.
MHT Partners’ Healthcare Services practice leadership team was in attendance, along with a vast majority of healthcare-focused private equity sponsors and other key players to discuss the state of the U.S. healthcare industry, drivers of and trends in recent M&A activity, and strategies for investing in and building great healthcare businesses. As a leading healthcare services investment bank, below are a few of our key takeaways from the conference:
Deal activity for healthcare services business remained strong throughout Q4 of 2017, and with Q1 of 2018 nearly complete, there seems little sign of dealflow abating. That said, high valuations and increased competition continue to make it a challenging environment for healthcare investors. While dealflow has remained strong, getting deals across the finish line is more complex. Borrowing a phrase that has been heard recently in the context of high valuations, “deals are priced to perfection,” meaning that given the lofty expectations of both buyers and sellers, issues that may once have been noted and moved past in confirmatory diligence, now frequently result in deal re-pricing and stalled deals. Concerns about the broader economy remain held in check, somewhat, by the underlying tailwinds (demographic, political, financial) propelling the healthcare industry. Additionally, significant amounts of capital both in the form of “dry powder” held by financial investors and debt from lending sources remain available for healthcare deals.
The key themes that have driven healthcare investment in prior years remain as valid and viable as ever. Below are several concepts that we repeatedly discussed during our conversations with financial sponsors and healthcare executives.
Consolidation/Race to Scale: There is a continued belief in the power of numbers, as evidenced in the ongoing specialty physician practice rollups being pursued by multiple financial sponsors across multiple disciplines. The thesis for these deals holds that larger groups can offer more care across more locations to patients, reduce costs associated with back-office functions (and make sole practitioners’ lives a bit easier), and negotiate more favorable rates with commercial payors. The success of a number of these rollups in dental, dermatology, and vision care (among a few specialties) has emboldened many groups to enter the fray.
For more mature specialties like dermatology, where a number of private equity platforms have been established, MHT Partners expects to see a wave of consolidation in the next 18 months as clear winners and losers emerge and larger groups consolidate. Interestingly, MHT has noted a meaningful amount of interest in emerging areas of specialty physician practice consolidation including orthopedic surgery groups (particularly those owning ASCs), GI, Urology, ENT and OB/GYN practices.