HPE Miami 2022 Healthcare Services Investing: Disruption and Dispersion

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The kick-off session of HPE Miami 2022 focused on the latest trends causing the most disruption in healthcare investing and forecasted what the healthcare investing landscape could look like moving forward. Ira Coleman, McDermott Partner & Chair, moderated the panel featuring insights from:

  • Alex Albert, Founding Partner, Patient Square Capital
  • Alex Carles, Managing Partner & Co-President, Wellspring Capital Management
  • Paige Daly, Partner, Harvest Partners
  • Jeremy Gelber, Senior Managing Director, Centerbridge Partners
  • Curtis Lane, Founder, WindRose Health Investors & Founding Partner, MTS Health Partners

In Depth

Top takeaways from the panel included:

1. Burnout, staffing shortages and inflation are creating continued pressure. The threat of employees leaving the workforce should be a top-of-mind concern for investors, Alex Carles noted. “We’ve never seen a greater need for really sophisticated human resources performance to both recruit talented individuals and also to manage through this compression.”

2. Private equity sponsors are uniquely positioned to offer support and leadership around talent management issues. “During the pandemic, a lot of us built up some muscles around employee support networks, really trying to think about ways that we could make sure that we were building companies that people were excited to say they worked at and that they were proud of,” Paige Daly said. “One of the things that we think about a lot on the private equity side is how we can use our lens looking across companies to share capabilities, strengths and innovations.”

3. Participating in companies that are making a meaningful difference in patients’ lives is increasingly important. “There’s an incredible war for talent, and at every level we’re seeing not just challenges with compensation, but a real demand to be part of something that’s having an impact,” Alex Albert said. “As private equity healthcare investors, we do this because we think we can improve patient lives.” The adoption of remote work arrangements during the COVID-19 pandemic has facilitated this focus on impact,” he said. Five years ago, having a management team located in different offices might have signaled instability, but today’s more flexible work arrangements can help gather the best talent available with a strong focus on mission.

4. The robust pace of healthcare investing activity seems set to continue through 2022, even amid current geopolitical uncertainty. “The good news for us is that healthcare is always there and it is always changing,” Curtis Lane said. “There are always transactions to do—to build out a portfolio company, to add to a portfolio, to sell out a portfolio. That’s always going to be there, particularly with the amount of capital that’s behind the industry.” While appetite for transactions remains strong, there is some question regarding pricing trends, Lane said. The market has shifted in the past three to six months, Daly agreed, resulting in a greater emphasis on business model fundamentals and likely a reversion to more traditional ways of valuing businesses. “That’s a big change that’s going to create business model shakeout and opportunities on the investment side,” she said.

5. As healthcare services companies consider going public, management teams must be realistic about the related operating challenges. Many healthcare companies that went public between 2019 and 2021 haven’t performed as well as expected, Jeremy Gelber said. “A lot of them just didn’t remember that you actually have to be able to forecast your business in a granular or quarterly way, and hit your numbers or exceed your numbers,” he said. “That takes a lot of infrastructure and it takes the right, predictable business model.” A management team may be highly talented and producing well, but operating effectively as a public company requires an additional core skillset.