Enter Keywords:
Add this blog
to your RSS reader
Krist Werling was interviewed by Becker's Orthopedic and Spine Review on current trends and issues for orthopedic and spinal device manufacturers. The interview addresses a wide variety of issues for ortho and spine manufacturers including the impact of healthcare reform on spine and orthopedics, changes at FDA and the impact of new physician transparency requirements. Read the interview here.
The following is a list of eleven of the more experienced and active private equity investors in the health care and life science space. These investors are from large private equity funds that specialize primarily in growth-stage, buyout and platform funding transactions.
1. Robert Womsley, Jim Connelley and Ned Villers – Water Street Healthcare Partners. Mr. Womsley, Mr. Connelley and Mr. Villers each work with the Chicago-based firm of Water Street Healthcare Partners. Water Street has over $1 billion in capital under management. Water Street exclusively invests in the health care and life sciences space with portfolio investments across both medical device, medical device distribution and health care providers. Several of their portfolio companies include Medical Specialties Distributors, Sarnova and Access MediQuip. More information is available about Water Street at www.wshp.com.
2. Craig Frances, M.D. Craig Frances leads the health care team at Summit Partners. Summit Partners is one of the nation’s largest private equity funds with headquarters in both Palo Alto and Boston. Dr. Frances serves as a director of HealthCare Partners, National Veterinary Associates and Physicians Formula Holdings. Dr. Frances can be reached at cfrances@summitpartners.com and more information about Summit Partners is available at www.summitpartners.com.
3. Scott Perricelli and David Stienes – LLR Partners. LLR Partners is a large Philadelphia-based private equity fund that invests in a variety of different sectors including healthcare services. Mr. Perricelli and Mr. Stienes led a recent transaction by LLR Partners to fund a platform company called Vivera Health which will seek to build out fertility surgical and laboratory facilities throughout the country. Scott is available at sperricelli@llrpartners.com and David is at dstienes@llrpartners.com and more information about LLR Partners is available at www.llrpartners.com.
4. David Koo and R. Craig Collister – RoundTable Healthcare Partners. RoundTable Healthcare Partners is based in Lake Forest, Illinois and was founded by senior executives from Baxter International and American Hospital Supply. Mr. Collister and Mr. Koo represent the next generation of leadership at RoundTable and focus on investing in various sectors of the healthcare space including medical devices. RoundTable has deep experience in investing in disposable and generic sectors of both medical device and pharmaceutical industries. More information about Mr. Koo and Mr. Collister and RoundTable Healthcare Partners can be found at www.roundtablehp.com.
5. Jeremy Silverman – Frontenac Company. Jeremy Silverman is a managing director at Frontenac Company. Frontenac is a Chicago-based private equity fund that invests in a variety of sectors and focuses portions of its funds on the healthcare space. During the 1990s, Frontenac was a leader in the practice management consolidation. Current Frontenac portfolio investments include Crescent Healthcare and E+ Cancer Care. More information about Jeremy Silverman and Frontenac can be found at www.frontenac.com.
6. Reeve Waud and David Neighbours – Waud Capital. Reeve Waud is the founder of Waud Capital and David Neighbours is a Partner at Waud Capital which is a manager of over $1 billion of funds also based in Lake Forest, Illinois. Waud Capital has invested in Acadia Healthcare and Hospitalists Management Group, LLC and has had significant success in the healthcare space. To further their management expertise, Waud Capital Partners has brought on board Gary Mecklenburg, the former CEO of Northwestern Memorial Hospital in Chicago, Illinois as an Executive Partner. More information about Waud Capital can be found at www.waudcapital.com.
In two prior posts regarding, we addressed various questions for a seller to consider when selecting an investment bank to help the seller achieve its transaction goals. Those questions, as well as those below, are just a handful of questions that we suggest companies consider . Ultimately, if you determine that working with an investment bank makes sense for your transaction, a bank can help you move a transaction along in an efficient, low stress and financially rewarding way if you are able to find the right bank for you.
Is the magnitude and type of transaction exciting to the investment bank such that it will keep the bankers’ attention and keep energy focused on pushing the deal through to completion? In other words, does the deal fall within the bank’s sweet spot? Deals that are at the larger end of a bank’s typical transaction size may mean that the bank has fewer contacts with the types of investors/buyers that should be targeted. Deals that are in the smaller end of a bank’s typical transaction size may not keep the bankers’ attention to drive the deal efficiently toward closing.
Will the investment bank be willing to follow your management’s lead on the key deal terms (including which targets are contacted, how the various stages of the process will run, etc.)? With the seller management team, does the bank have strong relationships with one or a few leaders that you perceive would be favored over other seller leadership? Alternatively, do you as the seller prefer an investment bank that will lead you through the process and is the investment banker able to do this for you?
Are the bankers willing and able to provide significant research and insight into potential buyers? For many sellers, choosing a buyer turns on not only the purchase price but on the buyer’s reputation and own strategic goals as well. This is particularly true when all or some of the seller management team will be staying with the buyer going forward. Most investment banks have research teams who can provide the desired information, but if in-depth information relating to the buyers is important to you, this is one aspect of the bankers’ services that should be discussed.
Does the proposed timing and track of the deal process proposed the investment bank make sense to you and work with your needs and goals?
Finally, what do the bankers’ clients have to say about them? The bankers should offer the ability to contact references from current and former clients. Discussing your questions with these references, particularly former sellers, may prove to be very enlightening as to the road ahead.
As a follow-up to our prior post on the topic, below are a few key additional questions that sellers can consider when evaluating investment banks in order to find the bank that will ultimately meet the sellers' needs. These questions are excerpted from a recent article authored by Krist Werling, Scott Becker and me.
One additional question sellers should ask ia How many investor/buyer targets does the investment bank intend to contact with the request for proposal? More specifically, how many potential investors/buyers does the investment bank intend to contact at each stage of the process? Investment banks can very greatly in their philosophy of which and how many targets to contact. Some believe in disseminating the RFP to as many possible targets as are available in the industry whereas others chose to limit distribution to a few select potential investors/buyers that they believe would have the most interest and that would be the best match for you. You should ask how many targets does the bank intend to initially contact and sign confidentiality agreements, how many will receive RFPs, how many will be invited to management meeting and with how many will the bank negotiate offers/letters of intent? Investment banks can very greatly in their philosophy of which and how many targets to contact. Depending on your own sales philosophy, this is another way that you can distinguish among investment banks.
Within the spectrum of investors/buyers that the investment bank intends to contact, how many strategic buyers vs. financial buyers such as private equity funds will be targeted? Strategic buyers are existing players in the industry that may seek to purchase or invest in your business in order to expand an existing business in a strategic fashion, and this may be a more or less attractive option for you as a seller depending on your relationships with your competitors in the industry, your willingness to divulge confidential information to competitors, etc. Financial buyers often will be willing to ultimately pay a higher price for the business where strategic buyers are often more stream-lined in their acquisition methodology and thus more likely to close the deal quickly and efficiently. To this end, challenges can arise with investment banks when they have too high a comfort level in one part of the market vs another. For example, in one healthcare transaction for a small specialty hospital chain with outstanding earnings, a client hired an investment bank for the principal purpose of seeking financial buyers. There, the bankers spent the great majority of their efforts with strategic buyers seeking, in the client’s view, the easier close but not necessarily the maximum price. Ultimately, the client perceived that it already knew each of the strategic buyers and that pricing from the strategic buyers would not permit a deal.
Do the investment bankers understand why your company is ready to sell at this time? Have they worked out the background story of the sale – essentially explaining why, if the business is such a great thing, you now want to part with it? Buyers will want to know why you are selling and your story about why you want to sell thus becomes an important part of the process.
Do the bankers believe you need to take significant measures to get the business more fully in shape to sell at a maximum price and are you willing to takes these steps?
What is the investment bank’s philosophy with respect to the completion of due diligence and negotiation of the form of purchase agreement/investment documents before signing a letter of intent? In other words, is the investment bank comfortable with signing a letter of intent before diligence is substantially complete and before at least a rough form of purchase agreement is agreed upon? Investment banks have different philosophies on the wisdom of signing of letters of intent early vs. further long in the process and it is important you be comfortable with the bank’s intended approach although the determination of which negotiation approach will likely be as dependent on the negotiation power of the seller (i.e. on the strength of the seller’s business and interest it generates) as it does on the investment bank’s own philosophy.
What are the fees to be charged by the bank? Most banks will charge a retainer fee (which will be treated as a deposit on payment of the full fee) as well as a sliding scale fee based on achieving targeted outcomes.
Who at the investment bank will be contacting the potential investors/buyers? In other words, will be bankers that you meet with during the initial selection process and works with most closely at the senior leadership level actually be contacting the targets and doing much of the ground work? Likewise, will those particular bankers be present at management presentations and at other key discussions with potential buyers after initial contact is made?
What does the investment bank believe is the range of value for your business? Specially, what assumptions of earnings are used to generate the value range, what multiple of earnings do they anticipate an investor/buyer paying? Within the total purchase price, what does the bank anticipate will be the buyer’s split of cash and debt financing? Although it is important for you to know that the investment bank values your business and will strive hard to achieve the most lucrative deal possible, it is also important to insure that you are working with an investment bank that sets aggressive but reasonably achievable targets.
In addition to the questions raised in Part I of this discussion, these are just a handful of questions that we suggest companies consider when assessing the value of various investment banks. In Part III we will discuss a few remaining issues for sellers' consideration when making this important decision.
On July 23rd, at the same time that it released the final rule relating to the new bundled payment methodology for renal dialysis providers, CMS issued a proposed rule that would create a new Quality Incentive Program (QIP) for dialysis services, tying a facility’s payment to how well it meets the QIP performance standards. The QIP, which is the first pay-for-performance program in a Medicare fee-for-service payment system, is scheduled to begin on January 1, 2012.
The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) required CMS to develop the QIP to improve the quality of care facilities provide to dialysis patients. The proposed rule utilizes just three dialysis quality measures, all of which are measured on a facility-wide basis by looking at the total patient population of the facility as compared to national averages: Hemoglobin above 12 grams per deciliter (g/dL), Hemoglobin below 10 g/dL and URR (urea reduction ratio) above 65%. These common measures of dialysis quality are what most industry experts expected to be included in the rule and are consistent with CMS’s own QIP outline released in September 2009. However, in light of comments received during the bundled payment rule-making process, CMS proposes to weight Hgb <10 as the most important of the three measures, accounting for 50% of a facility’s score, while the other two measures would each count for 25%. Each of the three measures would factor into the Total Performance Score, a 30 point scale which measures performance against 2008 national averages (or 2007 performance, if it is lower). The proposed rule includes a sliding scale of payment reductions for 2012, where the minimum Total Performance Score (TPS) that facilities would need to achieve in order to avoid a payment reduction would be 26. If a particular facility does not achieve a TPS of at least 26, the reimbursement withhold would be in .5% increments.
If this methodology becomes final law, CMS estimates that 3,205 facilities would achieve a TPS of at least 26 and thus see no payment reduction in 2012. On the other hand, CMS estimates 709 facilities would see a 0.5% payment reduction due to TPS of 21 to 25; 183 facilities would see a 1.0% payment reduction for TPS between 16 and 20; 184 facilities would see a 1.5% payment reduction for TPS between 10 and 15; and only 30 facilities would see a 2.0% payment reduction for TPS 10 or below. Thus 1,106 (or 27%) of all dialysis facilities would receive some payment reduction. However, viewed in terms of dollars only, for an industry estimated to receive $8.5 billion in Medicare payments in 2012, CMS’s estimate of approximately $17.5 million withheld in 2012 appears much less significant at roughly just 0.2%.
In addition to using the quality measures in determining the TPS for reimbursement, CMS proposes to continue publishing facilities’ results online (as has been the practice of CMS for many years on its own Dialysis Facility Compare website) as well on a certificate that would be displayed in the facility and likely tied to the facility in other CMS-mandated manners. Comments on the proposed rule are due by September 24, 2010 and use of the certificates is one topic about which CMS is actively soliciting commentary. CMS anticipates releasing a final rule on the QIP later this year.
Amber Walsh is a partner with McGuireWoods LLP focusing on healthcare transactional work and regulatory matters. Her experience includes representationMore...
Kristian Werling is a partner with McGuireWoods LLP concentrating in healthcare transactional work and regulatory matters for all participants inMore...
As a partner with the firm, Geoff has a wide scope of expertise spanning mergers and acquisitions, senior andMore...