Regulation Drives M&A, Especially in Health Care

I'm very fond of saying that regulation drives opportunity and in this case investment opportunity. I've been in health care running businesses until I became a professional investor, my whole career. That's what I cut my teeth on. It's counterintuitive, but in health care the absence of regulation leaves nothing but gravity. So things go very slowly in the absence of regulation. Even great ideas percolate, but they never quite get there unless there's a regulatory driver. So the advent of ObamaCare, the Affordable Care Act, drove all of this change. This huge industry, this huge complex industry, reacts really quickly to external drivers like regulation, but otherwise doesn't move at all. So it's no surprise to me that we've had all this rapid change in the first full year of implementation, but there's a lot of differed consequence that we're starting to see now. So I expect you're going to see lots of M&A activity and lots of investing going on, related to the ACA, for years.

Consolidation among Doctor's groups and independent physicians: This process of consolidation started in the 90s when the Clintons were in office. We thought that health care reform was going to come. That effort to consolidate started then, it continued for a while and then it totally stalled. Partly because the synergies accomplished through consolidation are really hard to come by. So, when the pressure disappeared, consolidation stopped. Now with ObamaCare, with the Affordable Care Act, I think all physicians are going to consolidate. Independents will become part of Multi-specialty and single specialty groups, like anesthesiologists. There will be large anesthesiology practices. They'll get acquired by hospital systems and hospital systems will consolidate. I think it will continue until the small practices are really gone, or a thing of the past.

-Mike Bernstein, partner, Baird Capital (VIDEO)

Ingredients Companies Add Up to Tasty Targets

Health and wellness has clearly put a spotlight on the food sector these days. What we've seen happening over time is consumers are demanding more and more from their food. They want their food to provide heart health, joint health. At the end of the day everyone's talking about protein. Consumers want more and more protein in their food products. And so what provides this underlying functionality? It's actually the ingredients that go into these food products. So we developed a thesis about eight years ago looking at buying the underlying ingredients versus just the brands. Take the protein space for example. We looked at buying a lot of the brands that provided protein, and instead of having to pick the winning brand, we said, 'Why don't we just buy the guy who supplies all of the protein to all of the brands?' So we ended up buying the largest global whey protein supplier. So in this case, instead of having to pick the ship, you're actually playing the rising tide.

-Sarah Bradley, partner, Kainos Capital (VIDEO)

Why the First 100 Days is So Crucial in a Private Equity Deal

The magic of the first 100 days is the fact that, in an acquired operation, the people in the operation are the most receptive to change. There's a new owner, people are excited, people have trepidation. And the idea is to harness that energy, that nervous energy, and to create momentum, to create the kinds of change and value that the PE wants. Whether it's improving an operation, whether it's changing a fundamental way of going to business, whether it's changing market - that's the time when people are the most receptive to change. The idea is that, on day one, is the maximum momentum that a company's going to have to drive changes in the organization. So it's dissipating from day one to day 100. The more that can be done in advance, to kind of create that steam and momentum, that helps a company sustain a change process. They get a running start if you will. And I think that's why people are looking to outline: "What is it about systems and sale and marketing culture that I'm going to want to address so that I can set up those plans ahead of time." I've never had somebody say I've had too much time. More the opposite. I wish I had more time before closing to get more prepared.

-Ed Kleinguetl, managing director, Grant Thornton (VIDEO)

Europe Boasts Growth Opportunities

A few years ago, emerging markets kind of had the edge. Emerging markets such as China and Brazil were associated with higher growth, and more opportunities. But, the risk reward profile of emerging markets has proven to be not so recession resistant. For dealmakers, Europe is a simpler market. They're each complicated in their own way, but getting deals done in Europe is little bit more like doing them in this country. There are some large semi-distressed deals such as GE's buying Alstrom on their power side. If you look in southern Europe, Spain in particular, and similarly in France, there's not a lot of competition for those deals. So, I think U.S. buyout funds could bring some real expertise. There aren't just distressed opportunities. There are really more growth opportunities. Many companies are just coming back from where they were in the recession years. Now that those companies have dialed back, it's a question of leading them back to growth. A couple of factors I would keep in mind with regard to Europe. The euro being weak and cheap will help companies significantly in 2016 and beyond. Also, gasoline costs three times as much in Europe as it does in America and so cheaper gasoline prices really hits the wall very quickly for the consumer.

-Ashley Rountree, managing director, C.W. Downer & Co. (VIDEO)

The Relationship Between PE and

Investment Bankers Has Seen Dynamic Shift

In the early days, it was all about the money. Connecting the deal with the money and I think really, the power in the industry was around the capital. What's happened is, right now, we're probably approaching a point where there's more money than there are deals and there's been kind of a shift back to the investment bankers that have the deals. They're becoming more important. So it's a more competitive environment to do investing, valuations are going up and I've seen that shift probably over the past 10 years. This is an industry that has, in my opinion, done quite well without being regulated. But it is now regulated. There's nothing we can do about that. Educating the regulators about what private equity is all about, is very important. Certainly the investment banking community is regulated. So, effectively the middle market capital markets is surrounded by government regulation that's something we have to educate Washington on how it works and why it works, to make sure they do no harm. 

-Doug Tatum, chair, ACG (VIDEO)

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