The healthcare industry remains a very hot place for investment. According to Morgan Stanley, the U.S. healthcare M&A market began 2018 with almost $39 billion worth of deals announced in January — the strongest start in over a decade. Many of the companies that are garnering attention from strategic acquirers and private equity firms have a few things in common: they are in subsectors where there is room for consolidation; they take pressure off hospitals; and most aim to give patients more specialized treatment, which is believed to lower the cost of care and improve outcomes.
“As consumers, we are all used to having access to almost any product or service on our phone in minutes,” says Justin Ishbia, founder of Shore Capital Partners. “As healthcare becomes more retail-focused, we believe that the winners in healthcare are those who adapt to the demands of consumers, and those who rely solely on traditional models will be left behind. The traditional models are no longer working, and there is room to deliver high-quality care at a lower cost and build better retail-like models that treat patients like valued customers, while also reducing costs by taking advantage of economies of scale. This is happening in a variety of niches within healthcare.”
Young blond Caucasian female opening her mouth while African-American ethnic dentist in white latex gloves check condition of her teeth
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Private equity firms are in hot pursuit of dental practices. The dental market is highly fragmented, with only 16 percent of dental practices rolled up, according to Harris Williams & Co. In 2015, Chicago-based lower middle-market private equity firm Sheridan Capital Partners made an initial investment in Smile Doctors, a Texas-based provider of orthodontic services. Since that investment, Smile Doctors has made 20 add-on acquisitions, including more than 10 in 2017.
2. Home care
The hospital setting is the most expensive place for patients to receive care, and sometimes it’s not the best place to receive care. With the growing public acceptance of the cost and health benefits of home healthcare, private equity firms and strategic acquirers see home healthcareas a growing line of business. The Riverside Co. bought ComForCare Health Care Holdings in 2017.
Smiling veterinary examining dog at clinic
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3. Pet care
People are increasingly demanding the same level of care for their pets as for themselves. And many of the same trends prevalent in medical practices for humans are present in the practices for pets. The sector is benefiting from consistent growth, as pet owners have more disposable income and spend more than ever before on their pets. In 2017,KKR & Co. (NYSE: KKR) acquired PetVet Care Centers from Ontario Teachers’ Pension Plan, and L Catterton.
The coating industry is fairly large, about $800 million to $1 billion in size, and TA Associates believes that the trend is to outsource the production of ready-to-use, fully-formulated coatings, which is driven by companies seeking innovative solutions that reduce processing time and a company’s carbon footprint. In March, TA Associates completed the purchase of Ideal CuresPrivate Ltd.
medical assistant filling the form
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At its most basic, revenue cycle management (RCM) is the billing, reimbursement andcollection function of a healthcare system. Historically, healthcare organizations such as hospitals handled this function in house. However, as both the need to comply with government regulations and the complexity of RCM increase, more healthcare organizations are choosing to work with outside vendors. Riverside Partners invested in Bottom Line Systems in 2016 as well as in Medical Reimbursements of America in 2017.
Justin Roman photographed for Clemson Eye in Greenville, SC on 2/11/17 by photographer Stephen Stinson.
Consolidation among eye care professionals continues to be a strong play for private equity firms. Despite years of consolidation it’s still a highly fragmented industry with only 33 percent of optical companies consolidated, according to Harris Williams. In March, LLR Partners formed Eye Health America, a practice management company established to buy eye care practices located in the Southeastern U.S. As part of the initial formation, Eye Health America announced the acquisition of the Eye Associates, Clemson Eye and Piedmont Surgery Center, providers of advanced eye care and ambulatory surgery services. LLR won Mergers & Acquisitions' M&A Mid-Market Award for 2017 Private Equity Firm of the Year.
As we head into the final quarter of 2020, Twin Brook Capital Partners’ Jennifer Dzwonchyk and Tony Maggiore discuss working with lower middle class companies and their private equity sponsors over the past several months and the amazing resilience many of these businesses have exhibited in the face of unprecedented challenges.