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The Healthcare Investor

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

What PE Investors Should Understand about Payor-Provider Consolidation – 4 Key Points

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 discusses payer-provider consolidation. It is authored by our colleagues Tamara Senikidze and Anna Timmerman.

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What PE Investors Should Understand about Payor-Provider Consolidation – 4 Key Points

By Tamara Senikidze and Anna Timmerman

Payor-provider partnerships and consolidation is set to continue this year, according to experts who spoke on a panel at the 17th Annual Healthcare and Life Sciences Private Equity and Finance Conference in Chicago. Historically transactional, and defined by reimbursement and coverage-based decisions, the payor-provider association is radically changing as providers and payors find themselves increasingly accountable for cost and quality.

Experts included Joe Mercer, Director at the Marwood Group, Marc Cabrera, Group Head of Healthcare Investment Banking at Oppenheimer & Co. Inc., Jeff Hignite, Senior Manager at ECG Management Consultants and Paul Kiehl, Attorney at McGuireWoods LLP. The panel was moderated by Anna Timmerman, Partner at McGuireWoods LLP.

Here are four key points from the panel discussion:

1. Diversified field in the provider-payor consolidation. As some of the most notable examples of provider-payor consolidation demonstrate, such as the CVS-Aetna and Optum-DaVita deals, the universe of provider-payor consolidations is not limited to traditional healthcare delivery models and ranges from payor consolidation with not only physician practices, but also home health services, ambulatory facilities (e.g., retail clinics, ambulatory surgery centers) and pharmacies.

2. Increasing interest in providing “whole health” care. Both payors and providers appreciate the expanding trend towards a consumer-based market. To this end, in consolidating, they aim to provide a broader range of consumer-focused services and technologies catering to the “whole health” approach, including consolidated patient portals, mobile and digital applications and wellness programs.

3. The payor-provider consolidation promises to be beneficial for consumers. Generally, the consolidating payors and providers aim to increase consumers’ access to lower-cost, low-acuity-care options, where possible. Some payors (e.g., Anthem) have expressed that they would not pay for certain hospital-based procedures if the same procedure could otherwise be performed in outpatient settings. Such payment restrictions are often coupled with payors also seeking to consolidate and coordinate with the lower cost providers and care settings they want consumers to use.

4. Complexities and pitfalls. When consolidating with providers, many payors are acquiring businesses and capabilities that are new, unfamiliar and have fundamentally different business models. Integrating new capabilities poses significant challenges, and payors may struggle with how to capture the benefits that drive the deal originally. Other difficulties may include the lack of strategy and performance alignment between payors and providers, issues related to contract pricing and rate-setting, difficulties associated with provider retention, relationships with other payors and providers in the market, and misunderstanding of potential regulatory risk.

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Healthcare and Private Equity in a Financial Downturn: Best Practices to Effectuate a Successful Change in Ownership in Distressed Situations

Posted in Healthcare Services Investing

We were pleased to have terrific attendance at our 17th annual Healthcare Private Equity & Finance Conference held February 19-20. The deep-dive discussions into various sectors, and on the industry and deal-making generally, were extensive and produced interesting discussion. Over the course of the next few weeks, we will be publishing a series of posts coordinated by our colleagues Greg Hawver and Melissa Szabad with key takeaways from various conference panels. The first in our series of posts discuss best practices to effectuate a successful change in ownership including distressed situations. It is authored by our colleagues Zoe Simon and Kenneth Noble.

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Healthcare and Private Equity in a Financial Downturn: Best Practices to Effectuate a Successful Change in Ownership in Distressed Situations

By Zoe Simon and Kenneth Noble

Successfully effectuating a change in ownership (including when the target is in financial distress) can be a critical step in a healthcare private equity transaction during a financial downturn. A panel of experts met to discuss their perspectives on best practices at the 17th Annual Healthcare and Life Sciences Private Equity and Finance Conference, held in Chicago on February 19-20, 2020. In light of the COVID-19 led financial downturn, these topics are particularly timely.

Experts included Amy Heller, Executive Vice President of Healthcare Lending at Congressional Bank; David Campbell, Managing Director at Getzler Henrich & Associates LLC; Andrew Turnbull, Managing Director at Houlihan Locky; and Brian Swett, Partner at McGuireWoods, LLP. Kenneth Noble, a restructuring partner in the New York office of McGuireWoods LLP, moderated the panel.

Here are five key takeaways from the panel discussion.

1. Understand the mission. The transacting parties should understand the mission, operations, and value proposition of the business undergoing the change of ownership. If the parties understand the mission, they will be committed to preserving those critical components throughout the transaction. In a distressed scenario, if the core values, core personnel and/or strategic advantage will not remain intact through such process, then parties should consider whether a transaction is viable.

2. Clarity is key. Parties will typically enter into a term sheet setting forth the high-level “business deal” with respect to a transaction. Successful transactions, however, require a further level of clarity in multiple dimensions of the deal, including the roles and legal duties of the parties involved, the quality of the due diligence performed, and the buyer’s ability to perform. Parties should discuss these rules of the road at the outset of the deal to increase efficiency and speed to close, to the extent not addressed in term sheet.

3. Be prepared. Transacting parties that are unprepared to meet notice requirements, to receive unsavory financial discoveries, or to process information indicating fraud or malpractice are likely to disrupt the business itself or delay the process. Parties and their advisors need to have a game plan for these types of negative developments and need to be flexible in making real time, significant changes to the game plan as developments arise – especially in distressed situations.

4. Know your counterparties. When transacting with younger or less experienced parties, it is critical to get to know the other side, make sure their plans are sound, and verify that no fraud or systems issues will stymie the transaction. While more “hand holding” and diligence may be required at the outset, oftentimes these are the opportunities in which private equity sponsors can add the most value.

5. Replacing power players may be necessary. In any situation where the board or other powerful entity members will be replaced, bringing the new people up to speed with the situation is essential to prevent a reduction in the quality of care. This may require much direct communication between incoming and outgoing entity members.

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Women in PE to Know: Leslie Frécon

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. We are pleased to feature Leslie Frécon of LFE Capital. Access her profile by clicking here.

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

GTCR Portfolio Company Maravai LifeSciences Acquires MockV Solutions

Posted in Life Sciences Investing

Maravai LifeSciences, a portfolio company of GTCR, has announced it has acquired MockV Solutions.

Maravai, based in San Diego, is a provider of life science reagents and services to researchers and biotech partners. The company focuses on DNA and RNA synthesis, bioprocess impurity testing and research immunohistochemistry and immunofluorescence.

MockV, based in Rockville, Md., is a biotechnology company focused on developing a series of analytical kits to help benchtop scientists quantify viral clearance in industrial processes.

As a result of the acquisition, MockV became part of Cygnus Technologies, a Maravai LifeSciences company, on March 16.

GTCR, based in Chicago, pursues a wide range of investments in several industries, including healthcare. Founded in 1980, the firm prefers to make more substantial investments from a dollars perspective. GTCR targets growth companies in all sectors of the healthcare industry.

Terms of the acquisition were not disclosed.

Healthcare & Life Sciences Private Equity Deal Tracker: Veritas Capital to Acquire DXC Technology Healthcare Unit for $5 Billion

Posted in Healthcare Services Investing

DXC Technology has announced it will sell its healthcare technology business to Veritas Capital.

Veritas will acquire the unit for $5.0 billion in cash.

DXC Technology, based in Tyson, Va., provides information technology services for a wide range of industries, including healthcare and life sciences.

Veritas, based in New York, is a private equity firm that primarily targets technology or technology-enabled solutions for several sectors, including healthcare.

The transaction is expected to close by December 2020.

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Healthcare & Life Sciences Private Equity Deal Tracker: Blackstone Acquires HealthEdge

Posted in Healthcare Services Investing

Blackstone has announced that it will acquire HealthEdge.

HealthEdge, based in Burlington, Mass., is a healthcare software developer for health insurers

The private equity business of Blackstone, which is based in New York, targets investments in established and growth-oriented businesses.

While terms of the transaction were not disclosed, media reported that the deal valued the software company at around $700 million.

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Bregal Sagemount Closes New Fund at $1.5 Billion

Posted in Healthcare Services Investing

Bregal Sagemount has announced the closing of its third fund with $1.5 billion in committed capital.

Bregal Sagemount Fund III exceeded its $1.35 billion target.

Based in New York, Bregal Sagemount is a growth-focused private equity firm. Founded in 2012, the firm seeks to invest $40 million to $150 million per transaction into control and non-control positions and will consider equity and/or junior debt investments.

Bregal Sagemount targets healthcare software, healthcare IT services and several other sectors.

Up-and-Coming Women in PE to Know: Allie Laborde

Posted in Healthcare Services Investing

McGuireWoods is continuing its effort to profile up-and-coming women leaders in private equity. This profile series complements our existing Women Leaders in Private Equity profile series. For this profile, we are pleased to feature Allie Laborde of The Stephens Group. Access her profile.

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

Healthcare & Life Sciences Private Equity Deal Tracker: Arsenal Capital Acquires BresMed

Posted in Healthcare Services Investing

Arsenal Capital Partners has announced it acquired BresMed Health Solutions.

BresMed, with its U.S. office in Las Vegas, Nev., is a health economic and outcomes research consultancy that provides health economic solutions to the global pharmaceutical industry.

Arsenal, based in New York, is a private equity firm specializing in investments in middle market healthcare and specialty industrials companies. Founded in 2000, the firm seeks control investments in companies with the capacity to use $50 million to $300 million of equity, including add-on acquisitions.

Terms of the transaction were not disclosed.

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Healthcare & Life Sciences Private Equity Deal Tracker: Cimarron Acquires Ascent Behavioral Health

Posted in Healthcare Services Investing

Cimarron Healthcare Capital has announced it has completed its acquisition of Ascent Behavioral Health.

Ascent operates several adolescent behavioral health programs throughout Utah. 

Cimarron, based in Bala Cynwyd, Pa., is focused on healthcare investments in the lower middle market. The firm prefers to make more substantial investments in healthcare services and technology companies.

Cimarron indicated that its investment would go toward supporting expansion of Ascent’s programs and potential acquisitions of complementary programs.

Terms of the transaction were not disclosed.

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