Overview
During this session, Kristian Werling, McDermott partner and co-head of the Firm’s Private Equity Practice Group, moderated a panel that discussed the creative strategies private equity firms can employ to successfully close transactions in light of recent events that caused market instability.
Session panelists included:
- Michael Balmuth, Managing Partner, SV Health Investors
- Christian Chauvet, Partner, Lee Equity Partners, LLC
- Hank Mannix, Investment Partner, Kelso & Company
- Steve Tole, Managing Director, Head of Healthcare, William Blair
- Carl Zimmerman, Partner, Amulet Capital Partners, LP
In Depth
Key takeaways included:
- The dynamics in physician practice transactions have changed over the past year because of challenging market conditions. While there has been a general decrease in the volume of transactions closing, there have also been new opportunities for private equity funds to work with successful practices that are feeling the negative impact of current market conditions.
- Minority deals have become increasingly challenging in the current market, due in part to the overvaluation of acquisitions that may have the effect of pricing smaller funds out of the market. However, many creative strategies can be implemented to close minority deals. For example, private equity funds might consider placing experienced executives in board seats in connection with acquisitions, which may help fuel growth in innovating areas. Additionally, putting in an early effort to form strong relationships with the owners of potential targets may help with pushing deals across the finish line.
- Exit strategies in the current economy vary depending on the size of the market. Most activity has recently been occurring in the under-$50 million market, where direct lenders are becoming increasingly aggressive. In larger markets, there has been a recent shift toward more refinancing opportunities as opposed to true exits, although some funds have turned to multi-lender solutions. Direct lenders sometimes collaborate in larger markets. As 2023 progresses, activity will likely increase in larger markets as market conditions improve.
- Private equity funds have been considering and utilizing several strategies to retain portfolio companies in the current market. One common tool being implemented is the use of continuation funds, which may mitigate the need to sell off portfolio companies during difficult market conditions. Additionally, many private equity funds are considering co-investment opportunities with other funds, which may help to spread out risks and fund transactions.
