Healthcare M&A – Why it is Vital to Have a Strong Acquisition & Capital Pipeline

May 14th, 2020

Opus Connect’s May 14th, 2020 webinar focused on healthcare M&A, which presents a growing cross-section of transaction opportunities in the middle market. The unexpected pandemic environment presents new challenges, trends, and opportunities in healthcare services. This event was moderated by Larry Simon (Clearview Capital) and panelists included Dan Schultz (Webster Equity Partners), Dan McIntosh (BMO Capital Markets), and Ken Benton (Ziegler). Main areas of discussion addressed include: 

  • Areas possessing the most benefit for the consumer/patient/client, and areas of challenge
  • How new lines of business, treatments, and technologies require a strong deal and capital pipeline and which investor groups are opening the door to these companies
  • How the current market for acquisitions and capital is faring, including which deals are going forward and which are delayed due to the pandemic

Larry started off by asking the panel where healthcare services remain strong. All panelists agreed that behavioral and mental health services have seen an increase in demand due to the corresponding headlines of the moment, with fear of job loss, getting sick, and the economy leading to nationwide stress and uncertainty. This area of the healthcare services industry had already been making pre-pandemic strides in telehealth, and companies offering telehealth services are poised to achieve the best outcomes. Dan McIntosh noted the overall positive response on the part of both providers and patients, calling the high utilization rate of telehealth services “the wave of the future.” Ken agreed, also adding that services for autism, home health, hospice, and addiction treatments are seeing more investment and high demand. 

Ken also noted that the primary goal of healthcare services, to manage the highest risk patients in the lowest risk – and lowest cost – setting, is essential at this time with things like elective procedures seeing a temporary downturn that is expected to pick up as Covid-19 becomes more manageable. Dan Schultz mentioned that companies in their portfolio focused on travel nurse staffing are seeing an obvious boost. 

Larry’s query to Dan Schultz regarding how Webster is working with investment bankers to create a transaction pipeline in this environment was met with actionable suggestions: 

  • Set up deals for success with potential add-ons
  • Create a continuous dialogue with investment bankers to demonstrate knowledge of the opportunities for future deals in other service areas that are largely unaffected by covid-19 (such as women’s health, which is always in demand) 
  • Be realistic in that deals are happening at a slower pace than in 2019, but are anticipated to pick up later in 2020 and looking toward 2021
  • Owners may be more willing and looking to sell to private equity firms or another strategic buyer so that they can grow their business while not having to deal with the day-to-day intricacies of business management and can focus on providing care

Turning to the investment bankers on the panel – Ken and Dan McIntosh – the topic was raised about how to keep in touch with prospects for deals. Both agreed that the industry needed to get back to in-person meetings to restore confidence in future deals, with the performance of current portfolio businesses remaining top of mind. 

On the lending side for healthcare services and the current environment for investors, Dan Schutz stressed that everyone is more conservative at the present time and lending is just not very open for business. However, all-equity deals are being done with the goal of refinancing at a later date in order to add good companies to current portfolios. Similarly, the hold time for portfolio investments is extended into 2021 to give businesses space to adjust to whether or not Covid-19 has had a positive or negative effect on their current status. Ken mentioned the impact on hold times, exit strategies, and go-to-market strategies will shift when buyers see a trend in growth, assuring the panel that bargain prices are unacceptable and the wait until 2021 is necessary. 

As Larry mentioned, Covid-19 has pushed exits by a few years but that is not necessarily negative, as it gives time for add-ons. Dan McIntosh agreed, but urged mindfulness of the current stress on health systems as they cope with overload from the pandemic. Overall takeaways as the panel wrapped include:

  • Continue to focus on portfolio companies and high-performing areas that are demonstrating increased use
  • Elective procedures will see a jump later in 2020 as patient confidence increases
  • Any specific questions on timing for deals must remain mindful of prioritizing safety throughout the rest of 2020 and into 2021

Thank you to all our participants for their guidance and expertise as healthcare M&A adjust to this unprecedented deal environment. We’d also like to thank our sponsors for this event: Plexus, Sapient Investigations, 4Degrees, Focus Search Partners, and Resourcive.