The influx of private equity deals into the healthcare industry is poised to reshape the way health services are offered and consumed in the U.S. But not all deals are created equally, and it’s important to do your due diligence when investigating potential deals. Below, Arthur Lynch shares a few sourcing strategies for your next healthcare investment.
Look Into Elder Care
Healthcare services currently account for about 10 percent of private equity growth and buyout deals, and this vertical includes a wide variety of services—hospitals, clinics, residential facilities, and home medical treatment. With the aging U.S. population, healthcare spending is projected to increase significantly over the next decade.
“Many current investments reveal the effort to capitalize on these demographics,” Lynch explains. “Investors are interested in consolidating some of the specialties that focus on providing advanced care to the elderly.” Other investors are relying on value-based models that emphasize preventative care to help improve outcomes.
Consider the Drawbacks
Healthcare has long been considered a recession-proof market—but the COVID-19 pandemic and healthcare staffing and supply chain disruptions have stressed the industry in ways never seen before. Shortages of providers, nurses, and acute care staff still pose major threats to the quality of care and profitability of healthcare providers.
Cost inflations are another challenge, and it can be especially problematic for healthcare providers due to the constant negotiation of reimbursement rates. “Private equity healthcare investors must be conscious of these supply-demand dynamics,” Lynch explains, “and navigate them carefully—whether streamlining recruitment processes, planning expansion carefully, or implementing employee retention measures.”
Prepare for Disruption
Corporate healthcare entities are consolidating even more quickly than hospitals these days—and that’s not the only disruption in the industry. From direct-to-consumer healthcare models, telehealth services, and membership-based or concierge healthcare, disruption is everywhere.
Private equity investors have to be ahead of the curve when it comes to adapting care delivery models. “Care delivery has to be convenient, patient-centric, and digital,” says Lynch, “or you run the real risk of being squeezed out.”
Some investors try to sidestep disruption by going into even more specialized options. These include medically oriented platforms that focus on complex cases and higher-margin cases, as there’s a far higher barrier to entry. Disruption generally tends to target lower-margin businesses that are more vulnerable to competition and innovative developments.
Seek Out Scaling Opportunities
In the past, private equity healthcare investments tended to focus on consolidating specialties—returns on these investments were driven by financial leverage and multiple arbitrages.
But today, investors are far more interested in scaling up and increasing market share in a metro area or region. This can help platforms negotiate better payer contracts, increase brand awareness and drive patient volume, and generate significant fixed-cost efficiencies.
Consider Value-Based Care
A final private equity strategy trend involves the pursuit of value-based care. As private equity in healthcare continues to expand, investors are becoming more sophisticated—and more willing to take bigger risks. This means expanding beyond established provider categories into new horizons, including value-based care.
Value-based care involves a number of moving parts and requires a sophisticated investor. You’ll need to balance data analytics, care coordination, payer negotiation management, and the decisions of when and how to scale—the risks are far higher than those of more entry-level private equity investments.
But when private equity investors are able to experiment with population health management in Medicare and Medicaid-heavy communities or build multispeciality medical practices, they’re not only able to realize a healthy return on investment—they’re also able to improve the provision of healthcare to entire regions of the U.S.
About Arthur Lynch:
Former professional athlete Arthur Lynch has built a name for himself in college and NFL football. He was a Tight End drafted in the fifth round of the 2014 NFL Draft by the Miami Dolphins and played with various teams. While his career has taken him from the NFL and into business and finance, Mr. Lynch actively contributes to his community as a Special Olympics volunteer and ran the 2021 NYC Marathon in partnership with Haymakers for Hope, a charitable organization that’s sole mission is to fight cancer.
Lynch also graduated from the University of Georgia in 2013 with a BA in History. He minored in political science and held honors such as the Dean’s List and Academic All-SEC. He continued his studies at the University of Pennsylvania’s Wharton School of Business, attending the NFL Business Management & Entrepreneurial Program at Aresty Institute of Executive Education. Mr. Lynch studied finance and investment strategy and was one of only two first-year players to be accepted into the NFL BME program.