On January 21, five Chapters of the Association for Corporate Growth (ACG) – Chapters from Tennessee, Texas (Austin/San Antonio, Dallas/Fort Worth and Houston) and San Diego – hosted a joint program “2021 Healthcare – M&A Perspectives Across the Nation” that drew over 450 registrants from across the country.
Bass, Berry & Sims attorney Tatjana Paterno (Nashville, Tennessee) welcomed participants to the virtual program and introduced the speakers; Kayla Marsh, BKD LLP (Dallas, Texas) moderated the investment bank and private equity panels; and Scott Ellyson, Clarity Partners and EQ Health Acquisition Corp (Austin, Texas) facilitated the Q&A session. Following the program, attendees participated in speed networking, connecting with healthcare dealmakers around the country.
Panelists included the following experts in healthcare investing:
- Jay Bradford, Riata Capital Group (Dallas, Texas)
- David Crean, Ph.D. – Objective Capital Partners (San Diego, California)
- Becky Gregg, Brentwood Capital Advisors (Houston, Texas)
- Grant Jackson, Council Capital (Nashville, Tennessee)
- Nicolas Lopez, HCAP Partners (San Diego, California)
- Mike Malloy, Raymond James (Nashville, Tennessee)
The following are some key takeaways from the discussion.
The subsector saw tremendous M&A activity in Q4 of 2020. The COVID-19 pandemic accelerated trends that had already provided tailwinds for the sector – i.e., healthcare sector participants looking for more efficient ways to operate their businesses. RCM-focused companies saw less activity while SaaS companies – particularly those that focus on analytics, outsourcing and efficiency – were viewed as attractive targets. Telehealth saw tremendous growth and M&A activity. Another winner was technology platforms that help assist with patient engagement (both on the payer and provider side) and recruitment (e.g., patient recruitment online for clinical trials). Investments of this type like that of HCAP Partners investment in 83bar were able to capitalize on innovative healthcare technology which is aimed to improve and increase patient activation in clinical trials. Experts noted a significant shift to virtual healthcare delivery, and technology companies that can deliver solutions in response to this trend will likely see high interest from investors.
This subsector, which involves patient and provider interaction, saw uneven activity. Home health and hospice benefited from the macro COVID-19 trends, and many of these businesses delivered a good performance and were seen as attractive M&A targets. The same was true for outpatient behavioral health businesses that were able to rely on telehealth. The physician practice management subsector, in particular specialties that provide elective procedures, was negatively affected by the pandemic, specifically those who relied upon an in-person visit, and as a result, there was less deal activity during Q2 and Q3, but activity for many picked up in Q4.
Large pharma and biotechnology companies, which have a continual need to build a pipeline via M&A to replace products coming off patent, are going to need to hunt even more aggressively among biotechs for acquisitions. This portends a very high level of biotech M&A in the years ahead.
Exits and Valuations
There’s flight to quality. “A+” businesses were able to exit at a very attractive valuation, in some cases, even higher than what would have been expected before the pandemic. Businesses that were negatively affected by the pandemic had to adopt a “wait-and-see” approach and focus on operational improvements, growth through acquisition, etc., to achieve exit numbers that they were targeting prior to the pandemic.
Platform and “Add-On”
Q2 and Q3 of 2020 generated more add-on activity as private equity firms embraced a “buy-and-build” strategy. As investors saw increased stability in the marketplace, they became more comfortable with standalone platforms and add-on acquisitions in Q4 2020. Additionally, on the supply side, numerous smaller businesses realized tremendous benefits affiliating with a larger platform which contributed to increased add-on activity.
Fundraising in 2020
Firms that could demonstrate great results in their portfolio performance despite the pandemic, such as Council Capital, saw a lot of interest from investors, resulting in tremendous support from investors. Council Capital is focused on companies that provide important services to healthcare participants and on adding value to its portfolio companies through its CEO Council, Strategic Healthcare Investors and Value Creation Team, all of which resulted in outstanding portfolio performance in the middle of the pandemic and which ultimately produced a successful fundraising round.
Companies Relying on “Buy-and-Build” Strategy
In the early days of the pandemic, AEG Vision, a healthcare services portfolio company of Riata Capital Group in the eye care space, focused first on safety for patients and providers, preserving cash, and reset their IT infrastructure. As the economy opened back up, AEG Vision returned their focus to acquisitions and grew the company by over 30% leading to the most active Q4 for the portfolio since inception. Significant resources were dedicated to IT and the development of proprietary software to ensure strong integration and visibility of performance at the practice level and the company overall.
The full content from the virtual program is available here. If you have any questions about any of the topics covered above, please contact the author.