Seems like HC services and particularly provider services have a really tough couple of years lately. I don’t know what could really change or break the log jam. Is Healthcare services IB ever going to be the same again?
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You can’t really roll up private practices that have already been rolled up. Likely will be a lesser amount of new ones due to fewer full fledged providers coming out of med school / CPT codes incentivize large health systems greater than private practices. There’s a few niche subverticals where the PPM rollup strategy is still effective, (gastroenterology, ophthalmology, etc.) but sector volumes overall a lot lighter than what it had been
Is it a permanent shift or will things see a return to normal
Could be some “second bites of the apple” I’d imagine but from a returns standpoint it would likely be lesser than the first deals as a whole …
variable I’m curious about is the amount of people coming out of medschool over the next 3-4 decades given how expensive it’s become… will likely see more responsibilities added to midlevels and some sort of AI usage to bridge the physician gap versus the number of people 65 and up seeking care. Don’t even get me started on the implied quality of care.
Our health will be in the hands of Lauren, (Arizona State, KKG, 2.0 GPA) and a computer … take your vitamins
Great take, will also say anecdotally as someone whose friends with many fresh medical attendings -- a lot of most lucrative offers out of training is almost always hospital / health system employers. No one wants to grow a private practice anymore (there are exceptions though, psychiatrists can make absolute bank if they do cash pay private practice in affluent areas vs. health systems and most of these small-mid sized local practices stay physician owned since they have very little overhead / no need for outside investors).
Healthcare services and PE go together like toothpaste and orange juice now to the general public … thanks Welsh Carson
I think in EMEA you’ve got lots of buy&builds that sponsors mark at 15x but are probably only worth 10-12x. Integrations/synergies often difficult along with regulatory and in some cases reputational risk. And there’s not really enough strategics for exits.
I think what’s currently happening is that many of these sponsors are holding on, often raising (more) junior debt to do some more add-ons and hope for valuations to recover, which likely won’t happen. They will eventually sell and if they can’t they’ll break covenants and the debt funds sell the businesses and you have a valuation reset.
That’s for outpatient services (lab, dental, orthopedics, ophthalmology etc. chains). Anything healthcare tech / software is of course in big trouble though with AI and likely not possible to do a deal at all.
So I think if you’re in investment banking you should pitch structured financing solutions right now and perhaps also look at some of the restructuring cases.
Interesting at least in the US markets, deal flow in healthcare tech / software has picked up significantly at the sponsor level. If anything, AI's potential use cases in the space for cost cutting seems like an appealing investment. I've noticed that outpatient deal flow has died down significantly past the MM and beyond (you will still hear of small private practices getting bought up, just not at the scale that it was so often done during ZIRP times).
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