Nashville Health Care Council Presents
“Financing the Deal” Virtual Panel
NASHVILLE,
Tenn. (May 27,
2020) – Last Thursday, the Nashville Health Care Council hosted their
annual event, “Financing the Deal: Deal-Making Trends and Strategies for Health
Care Companies,” featuring expert financial executives discussing current and
future investment trends. The panel participants provided inside perspectives
on the state of the market, the impact of the coronavirus on deal flow and trending
sectors to watch.
The conversation was moderated by Tom
Wylly, senior partner, Brentwood Capital Advisors. Panelists included Geoffrey G. Clark, senior managing director, Starr Investment Holdings;
Bruce Crosby, co-founder and managing partner,
Health Velocity Capital; Ann Lamont, co-founder and managing partner,
Oak HC/FT; and Scott Poole, partner, Ridgemont Equity Partners.
Wylly began the discussion with
background on health care deal activity from the last 18 months, explaining the
number and the dollar volume of deals had decreased in 2019 and, in the first
quarter of 2020, health care mergers and acquisitions dropped another 10% and
the dollar value of those deals was down 77%.
“So you
can see the M&A market has been weakening over the last few years and was
really put on life support with COVID-19,” he said. Wylly then asked the
panelists to characterize their deal flow prior to the coronavirus and describe
the impact of the pandemic on their portfolio companies.
Poole said the impact to his firm’s
portfolio companies has varied widely depending on the business, with about
half of the companies being largely unaffected. For struggling companies, they
have furloughed staff and cut salaries. “Other businesses have had very
different experiences,” he said. “For example, we have two health care
distribution businesses, one that delivers defibrillators. Historically,
defibrillator demand has grown 10% per year, but demand is down in this
environment. For those customers, we’re now selling personal protective
equipment. We created a whole new product portfolio of masks, gloves, gowns,
hand sanitizer, wipes and more, which has filled the hole from the
defibrillator demand slow-down.”
According
to Crosby, digital health was a very robust market in the first quarter
of 2020, with $3.1 billion invested in digital health companies, according to
Rock Health. “Like most, once COVID-19 hit, we retreated and focused on our
portfolio. Now we’re slowly moving out of it,” said Crosby. “We’re
invested in MDLive, one of the largest telehealth platform companies. Like
other telehealth companies, they’ve seen a tremendous growth in volume and
benefited from the coronavirus. On the other side of the spectrum, we have
companies that sell software to health systems and we expect sales to be slow
for three to sixth months until hospitals get back on their feet.”
Lamont referred to the coronavirus as “an
accelerant” for investment trends such as primary care, home care and
digitizing health care services. “Right now, you don’t want to be in an
institution like a nursing home or hospital unless you have to be. You want to
stay home and have all the support at home. Just like everyone has gotten used
to using Zoom, the reality is whether it’s mental or physical health, the
coronavirus has changed the dynamic between the clinician and the patient.”
Clark said his firm’s health care portfolio
companies took the hardest hit between mid-March and mid-April but are recovering
quickly with volumes up 50% to 75% in the last four weeks. “We are seeing an
aggressive snapback. The question we wrestle with is when will this start to
level out? What does pandemic recovery look like? At this point no one knows
the answer. The other question is what will the practice of health care look
like? COVID-19 has been the biggest accelerator of change I’ve seen in 25 years
of investing, not just in health care but across business processes and
spending.”
Looking
ahead, the panelists identified key factors needed to close new deals and
valuation expectations post-coronavirus. They agreed it will take time for the
financing markets and valuations to look like they did pre-coronavirus.
“From a valuation
perspective, sometimes it takes time,” said Clark, who is looking for
high-quality and high-growth assets and market leaders “Like the real estate market,
it will take sellers time to come to terms with reasonable valuations.”
Poole indicated confidence in
forward-looking projections and predictability are key. Crosby mentioned
that while Zoom videoconferencing aids communication, face-to-face meetings
with the management team are critical so investments may be delayed until travel
habits resume. Lamont agreed and suggested the exception to that rule is
investing in company executives and businesses that the firm already knows.
To
conclude, the panelists identified several sectors with growth potential. Crosby
expressed interest in the behavioral health and substance use disorder
spaces and referenced investments with Ginger, a text-based virtual behavioral
health company, and Spero Health, a Nashville-based addiction treatment
organization. Poole is also interested in behavioral health, alongside specialty
home infusion services and post-acute care. Clark identified
tech-enabled companies and organizations that address the “pain points” of
health care such as physician staffing. Lamont reiterated her interest
in primary care and companies embracing digitization to expand access to care.
The Nashville Health Care Council
will continue to offer relevant and timely virtual events during the COVID-19
pandemic. Register now for the next installment in the Council’s
virtual series, “Health Care Brass Tacks” on Tuesday, June 2, at 11:30 a.m. Watch
for more information on this and upcoming programs at healthcarecouncil.com.
About the Nashville Health Care
Council
The Nashville Health Care Council is a premier
association of health care industry leaders working together to inspire global
collaboration to improve health care by serving as a catalyst for leadership
and innovation. Since 1995, the Council has served as a trusted source for
information on trends and innovations influencing the nation’s health care
industry. Through regular programs, the Council provides members with
unparalleled access to national and international policymakers, industry
innovators, and thought leaders.
For more information on the Council, please visit
www.healthcarecouncil.com.
