HPE Miami 2022 The Healthcare Investment Banker’s Perspective—The New Normal

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Overview


Leading investment bankers discussed the current market climate for healthcare investing coming out of the record-setting pace in 2021. They also shared their insights on hot sectors, growth strategies and the dealmaking outlook for 2022 and beyond. Fred Levenson, Partner & Co-Head of McDermott’s Private Equity Partner, hosted the panel, with insights from:

  • Michael Dodds, Managing Director, Jefferies & Company
  • Mark Francis, Managing Director, Head of Healthcare, Houlihan Lokey
  • Simon Gisby, Principal, Life Sciences & Health Care Leader, Deloitte Corporate Finance
  • Philip Pucciarelli, Partner, Perella Weinberg Partners
  • Wyatt Ritchie, Managing Director, Cain Brothers

In Depth


Top takeaways from the panel included:

1. All five panelists made it abundantly clear: in today’s fast-paced dealmaking landscape, the player who walks in with the work done upfront will walk away with a deal in hand. “When you make the first call be ready to run,” Simon Gisby said. Deals are happening faster than ever, especially with the convenience afforded by Zoom. Startups should invest upfront in consulting and strategy before starting any processes. Everyone involved in the dealmaking process should do as much work as possible upfront to show your organization’s seriousness and to prevent unnecessary roadblocks from cluttering your path to a deal.

2. Another point that all five panelists stressed is that healthcare will continue to be a strong sector moving forward. Everyone had a rosy outlook. Panelists pointed to the fact that even non-healthcare funds are looking to healthcare as a smart investment. The wealth curve has left many well-capitalized investors considering healthcare investments including family offices, companies like Google and private investors like Jeff Bezos. That’s a wide array of players in the field and so much interest is expected to keep things moving quickly and keep valuations elevated.

3. Large companies like Google and Amazon are investing in the healthcare space and their commitments will likely grow. Their involvement has contributed to creating a landscape where there is more venture capital rushing to invest in the sector than there are startups, allowing new companies to emerge at a fast rate. Entrepreneur investors are also chasing healthcare. However, many startups could be looking at coming into the space as disruptors, impacting investments in traditional healthcare providers. Ultimately, a wide array of players could create challenges. “There’s just a significant amount of capital chasing too few assets,” Philip Pucciarelli said.

4. Investors with ready capital are thick on the ground and will continue to be in the foreseeable future. “There is an endless supply of dry powder,” Michael Dodds said. Investors are getting creative and it will be interesting to see if megadeals continue. There will be plenty of money flowing in from myriad sources including buyout money, conveners, Amazon Care and other investors, creating an interesting confluence of capital. This atmosphere looks set to hold through 2022.

5. “There may be a day of reckoning coming in the next few years,” Wyatt Ritchie said. If the debt markets crack, valuations could come down. Rising interest rates and the ripple effect of the conflict in Ukraine could also impact valuation and dealmaking. Inflation is the biggest risk as it will increase expense ratios and that can impact valuations. However, none of these factors is expected to have a devastating impact, and the private equity market isn’t likely to see a sea change.

6. The landscape has changed for prospective buyers with the emergence of a wave of European investors on the scene. With insufficient deal flow in Europe, many funds are incentivized to deploy more capital in the US than in Europe. The fact that partners in the US are paid on a US waterfall instead of a European waterfall is a factor that creates incentives to do more and bigger deals in the US. The way that European players make deals could also influence the dealmaking landscaping, changing processes.

7. “Ask yourself, how do you buy time, how do you save time in a process?” Mark Francis posed, in order to emphasize where everyone’s focus should be going into first- and second-round negotiations. CEOs and CFOs cannot sit any part out and must make time to get the pulse of PE investors, understand what family offices think of their space and seek feedback with consultants. This gives their companies an edge. Doing the legwork in early cycles, maintaining strong interpersonal and intercompany relationships, and having your ducks in a row before you start any process is the path to victory.