Opportunities and Pitfalls in Healthcare M&A
Sep 26, 2018
M&A continues to be a driver of change and innovation in the dynamic healthcare sector for both strategic acquirers looking to accelerate growth and private equity sponsors looking for their next great investment.
Intrepid’s Healthcare Group led a dynamic panel discussion at the recent ACGLA Business Conference with senior private equity leaders and corporate executives regarding the opportunities and pitfalls in healthcare M&A today. Adam Abramowitz, Managing Director, introduced the panel and touched on the current healthcare environment while Jonathan Bluth, Intrepid’s Head of Healthcare, moderated the session. Here are some highlights from the dealmakers and where they might find the next wave of opportunity.
Implementing Value-Based Care in the Middle Market
More and more provider groups are transitioning from fee-for-service to value-based care, which represents a challenging development for middle-market investors to incorporate into their modeling and valuations. It may not be the ideal strategy for all private equity sponsors to underwrite such a revenue model change into a valuation case without serious conviction of a successful transition. Migrating to value-based care necessitates robust financial reporting, sophisticated operations, and sufficient technology infrastructure to ensure successful, win-win outcomes. However, to maximize their valuation and options, panelists felt that all providers should develop a strategy on how to address value-based care in their sectors, regardless if it remains a small part of their business models today.
Innovation Can Provide Many Answers
Panelists expressed excitement to invest in and or acquire companies harnessing innovation within healthcare that is driving patient/consumer engagement, improving care management and enhancing outcomes. These innovations can increase efficiencies and reduce costs thereby creating attractive value propositions and M&A rationales. Further, new patient engagement technologies can improve data capture for outcomes analysis as well in niche areas like clinical trial recruitment. Despite their excitement, some panelists remained hesitant about pushing the innovation envelope too far and believed “tried and true” care models with proven track records of quality care will remain high on buyers’ wish lists.
Models That Address Healthcare Spend Will Win
American healthcare spending is broken. Investors and acquirers alike are highly interested in proven and emerging care models that can significantly reduce spending while offering great patient experiences and high clinical care. Panelists discussed the importance of addressing all key stakeholders in the system and how a winning healthcare business provides value to payors, patients and providers. Solve for the “3Ps,” and you will be at the top of everyone’s wish lists.
Continued Shift Towards Quality
In this active and competitive M&A market, panelists discussed how lofty valuations are pushing them to focus on only the best assets, both operationally and clinically. To justify the premium valuations necessary to win deals, acquirers want comfort when they are partnering with top-tier companies with strong management teams, high-quality operations, and clear pathways for near- and long-term growth. But, they also shared that buyers are placing increased scrutiny on outcomes and quality of care. Diligence processes have dramatically increased scrutiny and companies that don’t “check the boxes” may not garner premium valuations and a multitude of transaction options. Preparation is vital—so potential sellers should strongly consider completing a sell-side ‘Quality of Earnings Report’ and, in some cases, a coding audit before launching an M&A process.
- Jonathan Gluck, COO and General Counsel, Heritage Provider Network
- Anil Asnani, Senior VP of Corporate Development, LabCorp
- David Alpern, Founding Partner, Varsity Healthcare Partners
- Scott Kauffman, Principal, Northlane Capital Partners
Wednesday, Sept. 26, 2018
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