I recently had the pleasure of interviewing Trey Crabb, Founder and President of Health Strategy Partners, LLC, located in Nashville. Trey is a veteran strategic and financial advisor to the healthcare industry. In 2010, Trey founded Health Strategy Partners after spending many years at prominent advisory and investment banking firms in New York, Charlotte and Nashville. Our discussion focused in large part on Trey’s creation of Health Strategy Partners and his company’s focus and expertise as well as Trey’s thoughts on A Courting Process: Selecting an Investment Bank That is Right for You, an article I co-authored with my McGuireWoods partners Scott Becker and Krist Werling. The following is a synopsis of our interview.
Trey, I understand that your decision to found Health Strategy Partners was in part due to your beliefs that there was a real need for financial advisory services to for-profit and not-for-profit middle market healthcare companies. Could you explain your goals with the creation of Health Strategy Partners and the focus of your company?
Indeed, a dual focus on both not-for-profit and for profit healthcare organizations puts Health Strategy Partners in a unique position. When we work on transactions between these two groups of companies, our goal with the for profits is to be sure that they understand that ‘fit’ and patience are just as important, if not more so, than are valuation and access to capital. On the not-for-profit side, which includes government-owned healthcare facilities, helping boards understand the intricacies of structuring transactions to benefit communities and keeping income tax sheltered are two areas where we spend much of our efforts. As you question points out, we serve middle market companies in both of these segments in areas such as mergers, acquisitions, joint ventures and affiliations as well as equity and debt capital raises. We also work with much larger companies when their needs are middle market in size, and offer outsourced corporate development department services on the buy-side. We focus on healthcare services of all types from services provided in facilities (e.g. hospitals and others) and not (e.g. home health), and in more technology oriented businesses where service is important (e.g. transcription, laboratories).
Trey, I know that you have read our article A Courting Process regarding some key considerations for healthcare sellers in the investment bank selection process. Would you please share some initial thoughts regarding the recommendations for consideration discussed in article?
I read your article series with interest, as the process by which companies choose an investment banker is near and dear to my heart. As someone who has worked 20 years for two bulge bracket investment banking firms, a boutique firm, a consulting firm and now own my own investment banking firm, I have some perspective from the ‘other side of the table’. I’ll share my thoughts from the perspective of both large (and/or more sophisticated) and small (and/or less sophisticated) companies. Large companies tend to have their own staff dedicated to exploring strategic alliances, mergers, acquisitions, joint ventures, affiliations and the like. Depending on their geographic coverage, personnel may be located not only in the home office but in local markets many miles from headquarters as well. When it comes to buy side strategic transactions, these are usually handled in-house as a result. Smaller sell side activity is also usually handled in-house. When it comes to larger transactions or when the entire business is to be sold, management teams usually interview a small handful of firms who have multi-line capabilities and an industry emphasis. Since the late 1990s and early 2000s banks which have shown a willingness to lend are many times given a preference in such a process for a variety of reasons. In other cases, a firm (or individual) is chosen by the company without an interview process at all due to a previous relationship, or related, the interview process is pursued only to check pricing of the preferred banker (not my favorite process to participate in, unless I’m the preferred banker!). On a separate note, financing transactions related to bank debt are handled by in-house finance staff. Bankers are typically engaged only to access public debt or equity markets.
Would you please describe for us any changes you noted in the past several years regarding the investment banking business for healthcare companies?
The investment banking landscape has undergone significant change over the past 10 years. After 9/11 mass layoffs on Wall Street were commonplace, and many experienced bankers were forced to relocate to other firms with lesser known nameplates. Big firms since that time have been very quick to continue a pattern of reductions in force when industry sectors have become less busy. The relative importance of the boutique investment banks has really increased since that time as a number of those bankers either laid off from previous employers or those who have chosen to pursue that environment are chipping away at large firm’s market shares on strategic transactions. This has become more pronounced since the market downturn which began in 2008 and in many respects continues through today. As a result, companies large and small would be wise to find the banker with the best fit/relationship/demeanor/availability/reputation regardless of their level of overhead, as long as investment banking is a core part of their focus. Management teams generally will know within 30 minutes if a prospective investment banker has the connections and relationships necessary to get the deal closed.
Trey, what are your thoughts as to how healthcare companies typically identify potential investment banks and some nuances of the selection process?
Some larger organizations and most smaller companies may not have a dedicated staff of professionals focused on strategic transactions. Management teams may use an investment banker for buy and sell-side activity, and like larger companies, may interview a handful of firms or use another where a previous relationship exists. Sourcing of firms to interview and engage is many times haphazard – internet searches, board member and management relationships and referrals from other peers are typical methods used by smaller companies to find a banker. On the other side of the coin, there are a multitude of service companies with current and potential healthcare organization business – accounting, consulting and law firms; turnaround and management firms, software firms and other groups focused on providing financial advisory services (those who write RFPs and help with access to yet other firms providing bond underwriting and interest rate derivative services). In many instances, each of these firms will have an early view on potential strategic opportunities from time to time, and as a result be asked by companies if they also are in the “M&A” business. After hearing that question enough times, many of these firms have moved existing personnel into this area or hired new ones for that purpose. In these cases, the strategic advisory business typically becomes a bolt-on, non-core service designed to protect their original business. On the other hand, there are a number of firms focused squarely on what I’m describing here, the Middle Market, and they come in both generalist and specialist flavors. I have found that there are quite a few very good investment bankers who have worked in a collection of industries. When it comes to healthcare, my belief is that a deep industry knowledge saves time and generates a real return for the client. As for me, when non-healthcare opportunities come my way I happily refer them out to other quality firms in the hopes that they will treat me likewise. Companies of all sizes like the attention and idea generation provided from high quality, well known investment banking firms. Many of these companies will hire the most well known firm to represent them in a strategic transaction. I have heard too many instances however of deals being handed off to personnel different from the ones who do the marketing; to people with whom the company is uncomfortable, and without a personal connection to the original contacts of the firm. Companies must get the absolute commitment from the lead banker on the project and know that when they call, he/she will answer the call. This is the biggest selling point of boutique firms. They can get down to doing deals and just provide great service to clients. The biggest selling point of bulge bracket firms is access to professionals in every possible discipline: debt, equity, M&A, etc., some with a retail distribution network. Generally, these firms won’t do a transaction below a certain fee floor, unless they choose to do so to protect the existing relationship.
Thank you, Trey, for your valuable insight in this interview. Trey Crabb and Health Strategy Partners may be reached at 615.463.6262 or firstname.lastname@example.org. The company website is www.healthstrategypartners.com.