Preparing to Exit and Assessing Risk: Compliance Assessments, Financial Metrics and Other Pre-Sale Strategies for Best Positioning Investments

By Geoff Cockrell on April 18, 2019 Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on how sellers of healthcare companies can increase business value prior to a sale. It is authored by Rebecca Brophy and Greg Hawver of McGuireWoods LLP and Brett Martin of RSM US LLP.

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Preparing to Exit and Assessing Risk: Compliance Assessments, Financial Metrics and Other Pre-Sale Strategies for Best Positioning Investments

By Rebecca Brophy, McGuireWoods LLP; Greg Hawver, McGuireWoods LLP; and Brett Martin, RSM US LLP

Sellers continue to benefit from a robust M&A market and strong availability of credit. Even in a seller’s market, increased value can often be achieved through effectively preparing a company for sale, according to experts who spoke on a panel at the 15th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 21st.

Experts included Greg Hawver, Partner at McGuireWoods LLP, Anthony Catalano, Director, Risk Advisory Services at RSM US LLP, Tom Smith, Principal at Baird Capital, Ed Nakayama, Director at William Blair & Company, and Jeff Rolland, Director at RSM US LLP.

Here are several key points from the discussion:

1. Financial diligence will drive and support valuation. A buyer or investor will very likely perform a quality of earnings review to support the valuation of a business. This will enable the buyer to reduce unknown business risk and better control how known risks enter into the sale process. Having financial records and systems organized and vetted prior to entering the sale process will enable a seller to contribute to a more efficient and focused financial due diligence process, thereby reducing the time to close. Even though buyers will likely perform independent financial review, working with a team of advisors to develop and present a narrative that best positions the seller’s assets (and liabilities) to the market is a sound approach. This narrative (with supporting data) is commonly presented via a short “teaser” document that is distributed widely in the market, a more lengthy “confidential information memorandum” that is distributed to viable bidders and/or in-person management meetings with select bidders.

2. In the healthcare industry, having a buttoned-up compliance program will enable a more efficient sales process. Buyers will look for executive level leadership as it relates to compliance, particularly when the investor is a healthcare focused private equity firm. As part of an increased focus on compliance, the experts noted that sellers should be prepared to discuss regulatory, compliance and related business points in detail, including: (i) the handling of ePatient data/payor data; (ii) coding compared to market; (iii) reliance on reimbursement from high margin ancillary businesses; (iv) regulatory risk and (v) relationships with payors. Again, presenting a narrative around soft points in the business will help increase the value of the business in a sale process. A huge part of this is understanding the business, including regulatory and compliance risks, in detail and having an effective compliance program in place.

3. Cybersecurity is of increased importance to buyers and investors. The experts recommend performing a cybersecurity assessment in advance of a sale process to identify and quantify (and/or address) potential risks related to cybersecurity.

4. Do not underestimate the value of an organized data room and organized legal documentation. The experts recommended ensuring contracts and other legal documentation are up to date, signed and organized so that they can be presented to a buy-side diligence team in an efficient manner. Again, like with other areas of diligence, knowing any corporate, governance or contractual soft-points and being able to explain those to a buyer will ensure a more efficient process and help drive value. Among other things, a buyer will want to review organizational documents, all key contracts and any other legal items that are material to the business. If this information is presented as an organized package at the outset of a sale process, the process will run much more smoothly. More specifically, a seller be able to push for a shorter exclusivity period and sale process if the buyer is not able to use “lack of due diligence” as an excuse for delay.

5. Determine if it’s a good time to go to market. The experts recommend that sellers engage sophisticated advisers to help determine if it’s the best time to go to market and help organize and position around the points referred to above. A good investment banking and legal team can drive value to your business by helping:

launch a sale process when the company is likely to obtain its highest value sale;
determine the nature and scope of preliminary compliance reviews, including cybersecurity;
strategically address and position any known liabilities or other soft-points with bidders; and
organize documentation and operations to ensure the seller is ready to answer the sophisticated diligence questions a buyer will be investigating.

Organizing with these teams well in advance of a launch will ensure that a seller has its arms around financial, legal, compliance, cybersecurity and other items that a buyer will heavily review during the diligence process.

Women in PE to Know: Angie Henson and Heather Hubbard

By Amber Walsh on April 17, 2019 Posted in Healthcare Services Investing

McGuireWoods has long been an avid supporter of the advancement of professional women. As part of our initiative seeking to expand the leadership of women in private equity, we are continuing our series of profiling women leaders in private equity. We are hopeful that this series will serve to inspire other women to pursue their careers in private equity in a way that best challenges and motivates them, which these impressive women have all done. This month we are pleased to feature Angie Henson and Heather Hubbard of Valesco Industries. Access their profile by clicking here.

To recommend a woman for a future interview, email Amber Walsh at awalsh@mcguirewoods.com.

Reimbursement Trends in PPM Businesses – 5 Key Points

By Amber Walsh on April 16, 2019 Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on trends in physician practice management (PPM). It is authored by Sarah Ahmed and Erin Dine of McGuireWoods LLP and Jeff Fisher of RSM US LLP.

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Reimbursement Trends in PPM Businesses – 5 Key Points

By Sarah Ahmed, McGuireWoods LLP; Erin Dine, McGuireWoods LLP; and Jeff Fisher, RSM US LLP

A practice’s reimbursement mix, the ratio of out-of-network reimbursement, and response to value-based care are all important considerations contemplated by PPM companies prior to an acquisition or partnership with a practice, according to experts who spoke on a panel at the 16th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 20 and 21.

Experts included Lisa Alexander, Vice President of Farragut Group; Vito Dacchille, Chief Executive Officer of Redwood Dental; Matthew Evans, Managing Director – Healthcare of Monroe Capital LLC; Stewart Gandolf, Chief Executive Officer & Creative Director of Healthcare Success; and Katherine Gibson, Senior Vice President of Marwood Group. The moderator was Erin Dine, Attorney at McGuireWoods LLP.

Here are five key points from the panel discussion:

1. Though the importance of scale cannot be overstated, PPM investors are also looking for practices that have certain qualities that enable the practice to withstand unforeseen reimbursement trends, such as a diversified reimbursement mix. The panelists noted that certain specialty practices (e.g., dermatology, allergy, and GI) could look to developing opportunities around cash-pay patients so as to achieve reimbursement diversification. Further, given unreliable reimbursement rates across various payors, diversifying a practice’s reimbursement portfolio in terms of networks, commercial payors, federal and state payors, and cash pay is important.

2. Diversification of a practice’s reimbursement mix is not something that should occur right before a practice considers selling. Panelists noted that investors equate movement with uncertainty when analyzing a potential partner and investors are looking for consistency over anything when analyzing the target. Therefore, practices looking for an investor should start developing opportunities to diversify its reimbursement mix after a sale.

3. Diversification can also be accomplished by adding ancillary services. For example, practices could expand by adding an ambulatory surgical center or pathology and laboratory services to its existing practice. However, investors may not be willing to value a new ancillary investment as highly as a more established cash stream. Therefore, practices should consider the timing of adding any ancillary services lines with a sale in mind, and ensure the ancillary strategy is executed in a manner that will maximize value.

4. When analyzing PPM targets, investors place significant value on practices that have strong relationships and payor agreements with commercial payors, compared to practices that have a significant percentage of out-of-network reimbursement. Practices that are in-network with payors are typically providing the same services for 20-30 percent less reimbursement compared to practices that are out-of-network with the same payor. Further, payors are aware of the significant amount of M&A activity transpiring within the PPM space and there is a strong drive toward narrow payor networks.

5. The healthcare industry feels the current push toward value-based care reimbursement; however, panelists noted that this push is more intense in connection with hospitals and larger health care systems, rather than at the practice or PPM level. That being said, panelists noted that investors continue to place value on practices that have the internal infrastructure, leadership, and knowledge to handle future value-based reimbursement trends, even though it is difficult to underwrite this value from a capital perspective.

Current Issues in the Oncology and Infusion Therapy Space: Five Key Points

By Geoff Cockrell on April 12, 2019 Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on oncology and infusion therapy. It is authored by Lawrence Bailey and Gretchen Heinze Townshend.

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Current Issues in the Oncology and Infusion Therapy Space: Five Key Points

By Lawrence Bailey and Gretchen Heinze Townshend

According to oncology experts who spoke on a panel at the 15^th annual Healthcare Life Sciences Private Equity and Finance Conference in Chicago on February 21, 2019, the oncology space is growing and its pool of patients is expanding. At the same time, the industry is also undergoing significant changes from an operational perspective. Practices, investors, and other financial players in the oncology space should be prepared to see significant modifications to certain oncology treatment and payment norms that have been in existence for an extended period of time.

The panel of experts was moderated by McGuireWoods LLP partner Gretchen Heinze Townshend. The presenting experts included Sam Cappellanti, Principal at Bellweather Group, and Jaganmohan Maturi, a pharmacy economist and MBA candidate at the University of Chicago Booth School of Business. Here are five key takeaways from the panel’s discussion.

1. Oncology practices are growing and becoming more specialized. Oncology patient volume is on the rise, with 2018 seeing a 20% increase in the number of total oncology patients in America as compared to 2013. There has been significant growth in specific areas, including treatment of breast cancer, lung cancer, colon cancer, and leukemia. There is a parallel trend of practices no longer treating a wide variety of tumors and instead choosing to specialize in a smaller subspecialties within oncology. As would be expected, the market has also seen a trend whereby physicians are increasingly interested in becoming specialists instead of generalists. These trends have energized the oncology market, and 2019 should see continued growth and specialization.

2. Practices are diversifying their methods of delivering service to patients. In recent years, there has been a rise in the use of patient care management techniques, telemedicine to administer care, and other ancillary services that extend a practice’s capabilities beyond standard inpatient or outpatient infusion therapy. Managed care organizations are increasingly willing to reimburse for these ancillary services. Practices would be wise to investigate the revenue-generating opportunities the ancillary services provide, which in many cases take a relatively low level of effort for a practice to add to its current patient care models.

3. Biosimilars/generics will make a big impact in this space in the near future, but their impact won’t last forever. Due to the unique way in which oncology providers obtain, stock, and order drugs, practices may be able to transition between name brand and biosimilar treatments without interrupting operations or patient care. Right now, reimbursement pricing (both from commercial and governmental payor programs) for biosimilars allows practices to exploit cost efficiencies due to differences in those prices and the prices of name brand treatments. Eventually, the market will catch up with this phenomenon, so practices should focus on taking advantage of this pricing differential as soon as possible.

4. Changes are coming to the space that should help low-income patients better manage out of pocket costs, thus creating better patient outcomes and better revenue maximization for practices. Unsurprisingly, as costs per patient in the oncology space have increased, so have patients’ out of pocket costs. Around a quarter of US oncology practices have a patient population that consists of at least 50% individuals/households with an income of less than $40,000 per year. This means that practices need to get creative to ensure the availability of various treatments to all patients. There are a number of trends, including practices increasingly intervening in disputes between patients and payors, the usage of payment plans for out of pocket costs, and working with drug manufacturers that have robust drug replacement programs for low income patients. These can take effort on the part of practices, but hiring an extra employee who is charged with focusing on these strategies can pay big dividends.

5. Finally, practices and investors need to be flexible about developments in reimbursement in the mid-term future. CMS is pushing both commercial and governmental payors away from fee for service models and towards alternative payment models (APMs). In 2018, around 50% of oncology practices received significant reimbursement from APMs, and that percentage should continue to rise. All players in the market should be prepared to see fee for service models fall out of favor, and evaluate strategies to thrive in an APM marketplace.

Up-and-Coming Women in Private Equity to Know: Rachel Hannon, Summit Park

By Amber Walsh on April 8, 2019 Posted in Healthcare Services Investing

McGuireWoods is undertaking a year-long effort to profile up-and-coming women leaders in private equity. This new profile series complements our existing Women Leaders in Private Equity profile series, which will continue throughout 2019. For this profile, we are pleased to feature Rachel Hannon of Summit Park. Access her profile.

To recommend a rising star for a future interview, email Amber Walsh at awalsh@mcguirewoods.com.

Social Determinants of Health – Understanding Their Impacts on Investments: 5 Key Points for Investors

By Geoff Cockrell on April 4, 2019 Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on social determinants of health. It is authored by Hannah Schuppner and Leah Eubanks.

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Social Determinants of Health – Understanding Their Impacts on Investments: 5 Key Points for Investors

By Hannah Schuppner and Leah Eubanks

Growing research shows that factoring in the social determinants of health can change the course of treatment for patients and providers. Social determinants of health are the social and environmental factors that contribute to a person’s overall mental, physical, and emotional health. These factors are crucial to health status and treatment outcomes.

According to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 20 and 21, a growing trend in health care is to look beyond physical symptoms and instead look to external factors. Experts included Dr. James Rubin, Founder and Chief Executive Officer of TAVHealth, Joshua Slen, Vice President of Marwood Group, and Andrew Walsh, Senior Vice President – Care Management of Ciox Health. The panel was moderated by Mike Marrah, President of MMA Consulting.

Here are five key points from the panel discussion:

1. Social determinants are a key component of a person’s health, and it is estimated that these factors account for between 60% and 80% of what affects your health, according to one panelist. As such, practitioners are now beginning to integrate these factors into care plans and diagnosis. It no longer is enough to account for a patient’s physical symptoms; patients’ environment and the community and conditions in which they live are now an integral component of health interventions.

2. The historical care delivery model is largely reactive, with healthcare providers treating conditions or symptoms, rather than focusing on what is causing the condition or symptom. However, this is beginning to change. The healthcare industry is seeing more and more examples of how providers are able to better treat physical conditions by looking at the patient’s surroundings. For example, if a patient comes in complaining of asthma, the cause may be rooted in an environmental factor such as mold in their home. If the mold is never remedied, the physical condition will not improve.

3. Major insurers and payors are starting to make their contracts value-based, meaning that these contracts are now dependent on the patient health outcomes. As this trend continues, social determinants of health will become more important when it comes to payor contracts. For instance, if a payor will pay for an outcome, the provider will need to deliver the outcome in the most efficient manner. Efficiency requires providers to go beyond the physical symptoms to account for outside factors negatively affecting the patient’s condition.

4. There is an opportunity for investment in healthcare providers that already understand the importance of social determinants in their treatment plans. In order to understand what providers have already implemented and what measures could potentially be implemented moving forward, investors should begin integrating questions aimed at policies surrounding the social determinants of health into their diligence process and implementing procedures that consider how these social and environmental factors are affecting patients’ health. This can be achieved simply by teaching healthcare providers to inquire about social and environmental factors in addition to clinical information. If the patient is not coming in for follow-up appointments, perhaps the issue is not with the physical health, but a lack of reliable transportation. This is one example of how other factors directly affect a patient’s course of treatment.

5. CMS has now determined that value-based care can and will happen. As CMS and commercial payors have set this tone, factoring in social determinants of health is not only a smart business practice today, but will soon become an economic imperative. Investors should stay ahead of the curve and begin considering how best to implement policies that consider other determinants of patient health.

Investments in Provider Support Technology: Mobile Apps, Revenue Cycle Businesses, and Similar Investments – 5 Key Points

By Amber Walsh on April 2, 2019 Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on investing in and implementing technology. It is authored by Kayla McCann Marty and Sara Shanti.

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Investments in Provider Support Technology: Mobile Apps, Revenue Cycle Businesses, and Similar Investments – 5 Key Points

By Kayla McCann Marty and Sara Shanti

Technology has become a vital tool for improving affordability and efficiency of healthcare, but it should never be implemented solely for the sake of claiming that a healthcare entity is utilizing technology, according to experts who spoke at the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago last month.

Matt Hartzman, Healthcare Leader at RedMane Technology LLC, Lou Silverman, Chief Executive Officer at Advanced ICU Care, and Pete Tedesco, Principal at Health Enterprise Partners spoke to the room full of investors, innovators, and providers about what to consider when investing and, subsequently, implementing technology in healthcare. The moderator of this panel was Sara Shanti—Attorney at McGuireWoods. Below, are five key points from the panel.

1. Healthcare is needy. Due to the many business, clinical, and quality needs of this industry, healthcare technology is likely to attract investors attention if it has one or more of the following key characteristics: (a) the technology is scalable, (b) the technology provides an opportunity to integrate patient care across platforms or specialties, and/or (c) the technology is able to produce useful data (big or small) to improve the patient experience or demonstrate conformance to quality benchmarks. If a piece of technology does not solve for a core clinical problem, often involving one of the preceding characteristics, it will struggle to attract customers. The more of these characteristics that the applicable technology can meet, the more likely customers (and effectively, investors) will allocate capital to the project.

2. Hot is sometimes not. Technology or processes that are effective or “hot” in other market sectors are not always attractive to the healthcare sector. Healthcare technology must deliver meaningful value to providers and/or patients. This special need often requires input from clinical providers and patients during development of a healthcare product. The panel noted that in developing healthcare technology, it is paramount to consider whether the data output is useful in addressing the healthcare “problem” that the technology aims to solve. Overall, the technology needs to solve clinical or other specialized problems that exist in healthcare. A product developed for the purpose of “disrupting” the market is interesting, but a flag for additional diligence.

3. Signs point to success. The panel identified several signs that point to a useful piece of healthcare technology, including: (a) the technology establishes a commercially successful business model (often measured by EBITDA); (b) the technology has a substantial number of customers who continue to return to the producer for the product; and (c) clinical providers are interested in investing or using the product. Healthcare technology that has significant investment from within the healthcare industry are some of the most successful products because they are able to utilize feedback given by providers.

4. The hurdles are real. Healthcare technology faces numerous hurdles related to integration and user buy-in, as is the case for any piece of new technology within a sector. When adopting a new piece of healthcare technology, entities should be prepared to address: (a) education/training users on new interfaces; (b) differentiation within the marketplace; and (c) implementation that assures success of the technology. The panel experts noted that these challenges are faced by all healthcare technology companies and any healthcare technology company must plan for capital to overcome these challenges and plan for customer support of the same.

5. Diligence, ladies and gents. In connection with investing in healthcare technology, investors are required to critically diligence the technology’s owner and the new technology. Cybersecurity considerations are one of the leading areas of diligence for healthcare technology investors because there has been a significant rise in healthcare data targeting. Investors also need to understand how any new piece of technology is going to integrate into consumers’ existing systems. If the technology cannot integrate with multiple generations of software, the healthcare technology’s marketability may be limited. Finally, if market for the new healthcare technology is not significant, the investment is unlikely to be successful not matter the innovation.

Current Issues in the Oncology and Infusion Therapy Space: Five Key Points

By Geoff Cockrell on March 28, 2019 Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on trends and developments in oncology and infusion therapy. It is authored by Lawrence Bailey and Gretchen Heinze Townshend.

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Current Issues in the Oncology and Infusion Therapy Space: Five Key Points

By Lawrence Bailey and Gretchen Heinze Townshend

According to oncology experts who spoke on a panel at the 15^th annual Healthcare Life Sciences Private Equity and Finance Conference in Chicago on February 21, 2019, the oncology space is growing and its pool of patients is expanding, but the industry is also undergoing significant changes from an operational perspective. Practices, investors, and other financial players in the oncology space should be prepared to see significant modifications to certain oncology treatment and payment norms that have been in existence for an extended period of time.

1. Oncology practices are growing and becoming more specialized. Oncology practice patient volume is on the rise, with a 20% increase in the number of total oncology patients in America since 2013, with significant growth in specific areas, including breast cancer, lung cancer, colon cancer, and leukemia. There is a parallel trend of practices no longer treating a wide variety of tumors and instead choosing to specialize in a smaller subspecialties within oncology. As would be expected, the market has also seen a trend in physicians who are increasingly interested in becoming specialists instead of generalists. These trends have energized the oncology market, and 2019 should see continued growth and specialization.

2. Practices are diversifying their methods of delivering service to patients. Recent years have seen a rise in use of patient care management techniques, telemedicine to administer care, and other ancillary services that extend a practice’s capabilities beyond standard inpatient or outpatient infusion care. Managed care organizations are increasingly willing to reimburse for these ancillary services. Practices would be wise to investigate the revenue-generating opportunities the ancillary services provide, which in many cases take little effort for a practice to add to its current patient care models.

3. Biosimilars/generics will make a big impact in this space in the near future, but their impact won’t last forever. Due to the unique way in which oncology providers obtain, stock, and order drugs, practices may be able to transition between name brand and biosimilar treatments without interrupting operations or patient care. Right now, reimbursement pricing (both from commercial and governmental payor programs) for biosimilars creates efficiencies for practices relative to the pricing for name brand treatments. Eventually, the market will catch up with this phenomenon, so practices should focus on taking advantage of this pricing differential as soon as possible.

4. Changes are coming to the space that should help low-income patients better manage out of pocket costs, thus creating better patient outcomes and better revenue maximization for practices. Unsurprisingly, as costs per patient in the oncology space have increased, so have patients’ out of pocket costs. Around a quarter of US oncology practices have a patient population that consists of at least 50% individuals/households with an income of less than $40,000 per year. This means that practices need to get creative to ensure the availability of various treatments to all patients. There are a number of trends on the rise, including practices increasingly intervening in disputes between patients and payors, the usage of payment plans for out of pocket costs, and working with drug manufacturers that have robust drug replacement programs for low income patients. These can take effort on the part of practices, but hiring an extra employee who is charged with focusing on these strategies can pay big dividends.

Up-and-Coming Women in PE to Know: Melinda Baglio

By Amber Walsh on March 27, 2019 Posted in Healthcare Services Investing

To recommend a rising star for a future interview, email Amber Walsh at awalsh@mcguirewoods.com.

Five Takeaways From a Senior Healthcare Lenders Panel

By Amber Walsh on March 26, 2019 Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on the senior lending market. It is authored by Jamie Levin, Gregory Barr and Raj Natarajan.

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Five Takeaways From a Senior Healthcare Lenders Panel

By Jamie Levin, Gregory Barr and Raj Natarajan

The healthcare senior lending market remains very active, according to experts who spoke on a panel at the 16th Annual Healthcare and Life Sciences Private Equity and Finance Conference in Chicago on February 20 and 21. The experts provided a nuanced look at the market, pointing to exciting opportunities, while also making note of challenges.

Experts included Gregory Browne, Managing Director of Ally Corporate Finance, Jae Lee, Director of Bank of America, Adam Willis, Managing Director, Head of Healthcare of Madison Capital Funding, and Michael Young, Managing Director of CIT Group. Raj Natarajan, a McGuireWoods LLP partner moderated the panel.

Here are five key points from the panel discussion.

1. There continues to be an abundance of capital in the healthcare market in early 2019. The increase in capital deployment and growing competition among debt providers lead to a downward shift in deal size in 2018. Although deal terms were as aggressive as the market has seen, the number of deals remained high with a greater focus on hold size. More institutions are building stronger, deeper relationships with fewer sponsors, with some turning to non-sponsor and corporate opportunities. Due to the abundance of capital in the healthcare space, a bull market is predicted for the next few years.

2. Investors have continued to focus on highly fragmented areas within the healthcare market that provide opportunities for roll-ups. Physician practice management companies remain attractive and have continued to experience consistent growth in 2018, accounting for roughly one-quarter of the healthcare private equity deals according to the panelists. Investments in healthcare IT, veterinary, behavioral health, home health, hospice, autism, and health and life sciences companies have increased and are expected to grow in 2019. A panelist also noted that traditional, brick-and-mortar healthcare spaces (including senior housing and long-term care) can continue to provide attractive opportunities, due to demographic trends.

3. Capital is neither permanent nor monolithic. Each transaction is unique and it is important not only to consider the amount of capital, but the type of capital. Stability, certainty and flexibility are important qualities to consider when choosing a strategic partner.

4. Pressure on pricing and capital has driven the market. EBITDA is now seen as a proxy for purchase price and what the business can theoretically generate, rather than merely a proxy for cash flow. However, this pricing structure does not always materialize. There was some concern about trending increase in defaults given increased pressure on leverage, broad definitions of EBITDA and more diverse capital structures.

5. Due to the competitive nature of the healthcare market, diversity within portfolios are decreasing and greater hold sizes are becoming more attractive to investors. Lenders have had to become more aggressive in their underwriting, and sponsors continue to want the simplest financing solution that often results in single-lender or unitranche transactions.

The Healthcare Investor

Insights on Issues & Trends that Impact Investments in Healthcare & Life Science Businesses