In March 2020, the chairman of the Committee on Ways and Means asked MedPAC to examine the role that private equity (PE) plays in the Medicare program. One type of PE activity that has drawn growing attention in recent years involves investment firms that purchase companies and then try to improve their operational and financial performance so they can later be sold for a substantial profit. These types of acquisitions have become increasingly common in many parts of the economy, including the health care sector. The advantages and disadvantages of PE investment in health care have long been a topic of debate.
In 2019, executives at United Digestive published a foundational article in Clinical Gastroenterology and Hepatology that described the market forces driving a wave of consolidation among independent private practices. This follow-up article builds on that foundation to discuss the acceleration of consolidation over the past 2 years, continuing market forces, and the effects of coronavirus disease 2019 (COVID-19) on private practice.
Urgent care was one of private equity’s earliest healthcare fixations. Now, more than two decades later, investors may have found the ceiling in some markets. Experts following the urgent-care industry—which now stands at more than 10,400 locations—say that not only are some cities becoming oversaturated with clinics, private equity owners face a growing list of competitors who want to run them, namely health systems and health insurers. Telehealth’s swelling popularity also poses a looming challenge, as patients are increasingly comfortable getting their sore throats or rashes diagnosed over video in lieu of a clinic visit.
The recent news that a group of private equity buyers – Blackstone, Carlyle and Hellman & Friedman – have teamed up to buy Medline for more than $30 billion is an exclamation point on a booming M&A market for healthcare suppliers. The club deal – which the Wall Street Journal says may represent the largest healthcare leveraged buy-out ever – is representative of a market that has surged in recent months, buoyed in large part by the COVID-19 pandemic, according to GHA Research.
The acquisition of Medline Industries Inc. that was agreed to over the weekend, the biggest leveraged buyout in more than a decade, serves as the clearest sign yet that the appetite for megadeals is rising as the pandemic eases and private-equity firms look to deploy mountains of cash. Indeed, buyout firms are now sitting on more than $1.6 trillion of unspent cash, according to data provider Preqin—and that doesn’t take into account the billions that big institutional investors are clamoring to invest directly in deals.
The buyout of the medical supply company Medline may signal the next wave of private equity investment in healthcare, industry observers said. “I think this is the start of an explosion of private equity deals in healthcare,” said Richard Scheffler, health economics professor at UC Berkeley, adding that he wouldn’t be surprised if investment increases by 30% to 40% next year. “Everyone made a bundle in the Trump stock market; these firms are sitting there with capital and have to do something with it.”
Investors are increasingly interested in Frazier Healthcare Partners’ managing partner Ben Magnano’s bread and butter. Healthcare services, products, supplies, and information technology are drawing outsized inflows, most recently $1.4 billion to Frazier Healthcare Partners’ oversubscribed 10th fund, which recently announced its close. Magnano walks through the market opportunity, from secular trends to a post-pandemic rebound.
Cerberus Capital Management, demonstrating the rewards of Wall Street’s rush into health care, made a roughly $800 million profit on its investment in struggling Catholic hospitals, records show. The New York private equity firm quadrupled its money over a decade, according to internal documents and a federal filing this month. Co-founded by billionaire Stephen Feinberg, Cerberus executed an unusual exit. It offloaded its remaining interest to doctors who work in its hospital company, rather than pursue an initial public offering or sale to a rival.
Frazier Healthcare Partners, a leading healthcare-focused investment firm, has closed its 10th dedicated healthcare private equity fund focused on the middle market. Frazier Healthcare Growth Buyout Fund X, L.P. (FHGB X) was oversubscribed and hit its hard cap of $1.4 billion in total capital commitments. Frazier focuses on acquiring controlling interests in healthcare companies with EBITDA between $10 million and $75 million where it can invest between $50 million and $300 million of equity.
Private equity (PE) firms continue to play a crucial role in helping grow the autism industry through consolidation and strategic investments. And that trend is likely to continue in the months and years to come, experts say. Nonetheless, for some in the industry, a rather sensitive dilemma persists: How can PE firms — which largely and primarily focus on the bottom line — truly understand the needs of providers whose chief mission is caring for children with special needs?
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