Why healthcare execs should prepare for private equity to come knocking

Private equity's investments in the healthcare sector have become increasingly frequent and diversified in recent years — a trend that is likely to continue.

There were more than 700 private equity deals in the healthcare industry in 2018, and the industry continued to draw private equity investors in the first half of this year. Healthcare is an attractive industry for private equity investment, and the pace of PE deals in the sector isn't likely to slow down in the second half of 2019, according to Haley Beck, vice president of investing at Alpine Investors.

Here, Ms. Beck shares her thoughts on private equity's increasing presence in the healthcare sector and offers her predictions on healthcare private equity deals in the second half of this year.

Question: What is fueling private equity's increasing presence in the healthcare industry?

Haley Beck: These businesses are usually founded by great healthcare practitioners who have the business acumen to get the business to a certain size, but then they hit an inflection point. Private equity can provide the management talent, operational expertise and growth capital to grow to the next level, allowing the physician or founder to focus on what they're most passionate about — providing high quality patient care. These practices' recurring service model — people regularly go to the doctor for exams and checkups — make them attractive private equity investments in the same way that software businesses are. There is a ton of growth opportunity, including leveraging technology to provide new services, expanding number of offices to increase access for patients, and optimizing operations to allow healthcare providers to be more efficient. The fact that these businesses are providing essential services that are relatively recession-proof is just icing on the cake.  

Q: What are your predictions for healthcare private equity deals in the second half of 2019?

HB: Healthcare is a very broad industry with all manner of niches, so we don't expect any slowdown in PE interest this year. Many investments in healthcare providers were concentrated on the coasts, so we expect to see more heartland investments coupled with continued coastal growth. Similarly, we think interest will expand out of the biggest subsectors and into lesser-explored areas where there is still a lot of fragmentation.

The other big change is in how these conversations flow. A few years ago, when a private equity professional approached a care facility, the founders didn't know why we were there or how they could benefit by partnering with us. Today, doctors are increasingly familiar with private equity and how we can help them grow and free them up to focus on patients. In the coming months, as we see more money flow into the industry, doctors who have done their research will come out on top.

Q: What sub-sectors of the healthcare industry are drawing strong interest from private equity investors?

HB: There is still activity in dental and dermatology, but those are already quite consolidated by private equity. Lesser-explored sectors like GI and urology are at the beginning of what we expect to be a wave of growth equity. Physicians in these spaces should be reaching out now and expect firms to come knocking.

Q: Does Alpine Investors plan to push further into the healthcare space this year?

HB: We do! We have over a decade of experience in healthcare, and we recently announced the launch of our ophthalmology platform with the acquisition of two healthcare facilities in Ohio. In the coming years, we plan to add over 40 practices to the platform across 3 or 4 states. Additionally, we are exploring investments in other sectors of the healthcare space to add to our growing industry expertise.

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