HPE Miami 2023 | Assessing Market Conditions in the Current Economic Environment - McDermott Will & Emery

HPE Miami 2023 | Assessing Market Conditions in the Current Economic Environment

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Partner Andrea Zazulia moderated a panel during the Independent Healthcare Company Transactions Forum that focused on the ripple effects of recent market dynamics and the short- and long-term prognosis for healthcare transactions. Panelists included leading investment bankers who shared insights on current market trends and their impact on transaction considerations for the rest of 2023 and beyond.

Session panelists included:

  • Steven Aguiar, Managing Director, Coker Capital
  • Henry Bloom, President, The Bloom Organization
  • Andrew Hewlett, Managing Director, B. Riley Securities
  • Porter Meadors, Director, Brentwood Capital Advisors
  • John Riddle, Managing Director, Brown Gibbons Lang & Company

In Depth

Key takeaways included:

  1. Creative Deal Structures Given Today’s Debt Market: Buyers and sellers have proceeded with caution over the last few quarters given the fluctuation of interest rates and limited availability of debt financing. Although the hesitancy of debt providers and the uncertainty surrounding interest rates has made it harder to transact, deals have not stopped altogether, and the market is still hot for the right targets. Parties are finding innovative ways to address valuation issues, including the use of seller notes, earnouts and creative structures that are beneficial to all stakeholders.
  2. Hot Subsectors in the Current Market Dynamics: Changes in market dynamics are creating opportunities for new healthcare subsectors and driving sponsors to diversify their platforms. The healthcare services market continues to be a complex, multifaceted industry that encompasses a broad range of services, and the current environment has enabled certain pockets of the industry to experience significant growth. For example, the panelists shared that sponsors who previously transacted exclusively in the physician practice management space are now diversifying and investing in other subsectors. This has led to a significant increase in transactions in health IT, pharmaceutical services and technology-driven healthcare services, including revenue cycle management, educational training and staffing. Transformative transactions are indicative of—and a further driver for—rethinking healthcare, including as a great deal of optionality for investors.
  3. The Healthcare Market Continues to Grow: The panelists all agreed that healthcare will continue to be a strong sector moving forward. Even in the current market, there are still significant opportunities, including substantial activity and high multiples in the pharmaceutical space, particularly in connection with any post-approval market strategy or consulting services. The panelists anticipate an extremely strong second half of the year for healthcare services generally and believe the market will begin to feel crowded again for physician platforms as debt markets begin to settle down.
  4. Preparing for a Sale: The panelists indicated that in the current conditions, companies must be adequately prepared prior to going to market in order to get a deal across the finish line. The panelists also stressed that any company looking to sell in the next 12 to 18 months should begin preparing for the transaction process now and ensure that they are aligned with their advisors. Organizations that do not spend enough time preparing for a transaction and understanding key value drivers often experience significant issues. Steps companies can take to best position themselves for a potential sale include (1) ensuring the company is clean from a compliance and financial perspective, (2) conducting billing and coding audits (as applicable) and completing the Quality of Earnings process early, and (3) getting ahead of any potential or known issues, including addressing any labor storages or other areas of concern that may come up in the due diligence process. Companies should also consult with tax and accounting advisors regarding the organization’s current structure and take any restructuring steps necessary prior to going to market.