HPE Miami 2023 | Getting Tactical: What Healthcare Investment Bankers Think - McDermott Will & Emery

HPE Miami 2023 | Getting Tactical: What Healthcare Investment Bankers Think



During this session, Partner David Ivill moderated a panel featuring investment bankers at leading financial institutions that discussed the big economic themes they predict for the year ahead, particularly as they impact healthcare investing, a sector that has historically outpaced other industries during past slumps.

Session panelists included:

  • Phil Colaco, CEO, Deloitte Corporate Finance LLC
  • Mark Francis, Managing Director and Global Head of Healthcare, Houlihan Lokey
  • Michael Gerardi, Global Co-Head of Healthcare Investment Banking , Jefferies & Company
  • Matthew McAskin, Senior Managing Director, Evercore
  • Emily Wildes, Managing Director, Lincoln International

In Depth

Key takeaways included:

  1. Economic headwinds such as inflation, interest rate hikes, recession fears and geopolitical uncertainty have changed the market. Many private equity groups have become less active and more disciplined with a heightened focus on due diligence. Strategic buyers have become bifurcated, with large retail pharmaceutical companies, retail care companies and similar strategic buyers continuing to embrace the risky environment while others pull back.
  2. Certain provider services, such as physical therapy, hospitals and large corporate and strategic businesses, have suffered disproportionately, largely because of upward wage pressure, burnout and turnover. Conversely, there are plenty of opportunities in the cash pay elements of healthcare, such as fertility services, aesthetics and veterinary, due in part to payor rates trailing inflation. Other areas of opportunity include home health and ambulatory health.
  3. Great businesses continue to sell at a premium price despite the economic headwinds. However, there are fewer of those businesses now compared to a year ago. The current market largely consists of buyers and sellers who need to do deals (because of economic conditions or otherwise) and best-in-class acquisition targets.
  4. Other factors that will affect valuations in 2023 include financing, fundamentals and creativity. Uncertainty around interest rates makes it difficult for buyers to appropriately price deals. Uncertainty around margins, wage inflation and recessionary risk separates the best-in-class management teams from the rest. Structured notes and other creative forms of financing are becoming more common ways to bridge valuation gaps.
  5. Price, speed and certainty are fundamental to making prospective buyers stand out, followed by experience in the sector and relationships. However, this is complicated by heightened risks in the diligence and regulatory approval processes and a general sentiment of risk aversion.
  6. Distressed transactions are already increasing in frequency and will continue to do so. Precursors for distress, including divestitures, will become more common, particularly on the hospital side. Private equity can often solve for distressed businesses in attractive sectors because of a weak balance sheet or poor management.