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The Big Story: Crafting the next-generation value creation playbook in healthcare private equity

“While the pandemic has disrupted demand for certain healthcare sectors, it has accelerated innovation and provided an opportunity for investment in other areas. In particular, there’s been rapid growth in virtual and home-based care delivery, along with the adoption of technology platforms.”

What We Heard at HPE Miami 2022

(2-minute read)

The opportunities and rapid growth were big topics at HPE Miami 2022, but the conversation didn’t end there. In fact, those were just starting points. The annual event, hosted and produced by global law firm McDermott Will & Emery, attracted more than 700 attendees from corners of the industry spanning investment, banking, legal and supporting services (including at least three strategic communications pros).

If we had to pick one word to summarize the trends we heard, it would probably be “leveling.” Investors remain optimistic and active, yet there was a sense that the industry is taking a bit of a breath. Here’s what that looks like:

Global disruption = wait-and-see.

  • There was concern about possible continued or exacerbated inflation and added pressure on the healthcare workforce, but beyond that the crystal ball stayed on the shelf.
  • Why? With Russia’s horrific invasion of Ukraine casting shadows, attendees were wary of looking too far into the future. “We don’t know” isn’t a particularly compelling take, but it’s a reasonable one in the face of today’s deep human concerns and economic volatility.

Plateauing pace.

  • Across the board, 2021 was an explosive year for healthcare PE investing, with several firms noting that they made a record number of investments in promising new technologies and unheralded opportunities to improve healthcare.
  • Yes, but: The result was a rise in valuations that attendees agreed was unsustainable. A common refrain was that 2022 will be a year of “refocusing” and “rebasing,” with valuations leveling off. One attendee suggested that this year will provide a “Zen” moment for healthcare investing.

Many paths to a deal.

  • While 2022 is expected to breathe, that doesn’t mean there won’t be opportunity. Between new family offices, European firms opening offices in the US, special purpose acquisition companies (SPACs)* and a significant reservoir of capital that firms may now be ready to deploy, there are more sources of funds than ever.
  • Plus: Transactions can go through faster, thanks to an accelerated transaction process brought on by the pandemic that shows no sign of reverting. Some bankers said they closed deals last year having never met the client or the buyer in person at all.
  • *Though still a reasonably popular financing mechanism, we heard rumblings that interest in SPACs is cooling. SEC Chairman Gensler has pushed his agency to come up with new, tighter rules surrounding SPACs, and the investment community is watching closely to see where it all lands.

Patients first.

  • As for what’s considered an attractive investment, attendees are continuing to keep their eye on anything that makes patient engagement better, faster, more convenient and less costly.
  • Think: Care in the home, outpatient settings or virtually, interoperability, value-based care and physician specialty roll-ups – to name a few.

Show, don’t tell.

  • There was a level of open pragmatism as the PE community discussed moving from investments based on the art of what’s possible back to those with defined execution and practicality on their way to creating value and improving delivery of care.
  • Put another way: Investing in what companies with a clear path to delivery vs. liberal promises to deliver.

Propping up people.

  • One attendee uniquely framed it this way: The healthcare services sector is fundamentally talent management.
  • Technology, care delivery models and process efficiency may get the headlines. But at its core, it’s people providing a service – a profound and personal service – to other people. Individuals doing that work are mission-driven, financial compensation isn’t the end-all-be-all, and labor is the number one challenge for healthcare today.
  • Therefore: In 2022 and beyond, health services companies must build meaningful cultures that make employees and clinicians proud to work there.

The last word.

  • The event itself was extraordinarily well-received by attendees. Here’s Jarrard Inc. partner and chief development officer Anne Hancock Toomey:
  • “McDermott did a phenomenal job creating an environment where people got to be together for the first time in two years and did it in a safe and fun way – outside in the fresh air and sunshine. More than 700 attendees from across healthcare investing. There was buoyancy among the crowd. Just so thrilled to be in person again.”

This piece was originally published over the weekend in our Sunday Quick Think newsletter. Fill out the form to get that in your inbox every week.