J.P. Morgan Conference Kicks Off 2018’s Healthcare Dealmaking


Shortly after 2017 concluded with several sizable and transformative healthcare transactions—such as the pending acquisitions of CVS by Aetna and Kindred by Humana and a consortium of private equity (PE) investors—the Intrepid Healthcare Team spent several days at the J.P. Morgan Healthcare Conference in San Francisco with many of the industry’s leading strategic acquirers and PE investors. We shared lessons from 2017 and planned areas of focus for 2018, bringing to the surface several interesting themes that we expect will drive M&A activity in the coming year, especially with companies in the middle market.

Continued Movement Towards Value-Based Care

Investors and strategic acquirers strongly believe the marketplace will see an increase in value-based care models. As MIPS (Merit-based Incentive Payment System) and MACRA (Medicare Access and CHIP Reauthorization Act of 2015) push providers to demonstrate better value, expect investors to gravitate to entities that can capitalize on this ongoing transition. Software vendors and providers with proven models for reporting on quality should not only be successful under value-based care reimbursement models but should prove attractive to investors and strategic acquirers.

Focus on Technologies and Services That Reduce Cost

As a corollary to the value-based care movement, a strong and consistent theme of our discussions was an interest in tools and services that can eliminate or reduce costs from an already bloated system. This can range from outpatient services that offer a lower-cost setting than traditional acute care hospitals, specialized diagnostics that can determine a patient’s predisposition to a therapeutic outcome (think personalized medicine), and companies that can facilitate profitability in a risk-bearing environment (think reimbursement models such as capitation, global risk, etc…).

Search for Data That Can Drive Results

Throughout the healthcare ecosystem, the value of data has never been more evident, especially in the context of the movement to value-based care and cost containment. Be it clinical data to improve care pathways or to stratify population risk factors, investors are heightening their focus on their ability to capture and utilize such actionable data. In addition, technology enablers that facilitate the capture and effective application of the data are high up on dealmakers’ wish lists.

Emergence of New Healthcare Investors

There were several new healthcare-focused PE groups at this year’s conference, including: Granite, Havencrest, Health Velocity, LightBay, NaviMed, Northwood, and RiverGlade. These funds were started by the healthcare leadership of well-known investors like Ares Management, Flexpoint Ford, and Sterling Partners, while there are still others that have launched from historically generalist investors seeking to re-prioritize their efforts into healthcare. It was encouraging to see at a dealmakers’ conference like J.P. Morgan how both new and old investors alike were vying for visibility into 2018’s potential deal flow, implying we could be in store for another robust year of competitive transaction processes yielding premium valuations.

Buyers Are Trying to Differentiate

Nearly all buyers conveyed frustration in losing competitive auctions for companies that ultimately traded at higher than expected valuations, and shared how they plan to change their approach in 2018 to increase their ability to stand out from the crowd in ways aside from valuation alone. They talked about “picking their spots” to focus on key sub-sectors where they may be able to leverage prior industry experiences or value-added resources (such as operating executives, payer relationships, etc…) to become truly strategic partners. They also discussed a preference for finding less competitive processes for “the next big thing” and investors cited a mix of new sectors fitting this category, such as GI, podiatry or urology that have not seen significant private equity investment to date, as well as more mature sectors whose reimbursement cycles appear to be returning to a stage of profitability, such as imaging and oncology.

As you consider your M&A activity in 2018, keep these themes in mind and feel free to let us know how you might leverage them for your benefit. Stay tuned for an active and exciting year of healthcare M&A activity!