Bain Capital’s Chris Gordon: ‘Sellers remember the still-recent past, and buyers fear the future’

'Completing investments in this type of environment requires a lot of conviction and creativity, the ability to invest across asset classes, and real, demonstrated value-creation capability.'

To gain insights on the current climate for private equity deals, PE Hub and PE Hub Europe reporters have been asking a wide range of sources to share their outlooks for 2023. Our series continues now with this healthcare focused edition, featuring Chris Gordon, a partner and the global head of healthcare at Bain Capital. Gordon has been with the Boston firm since 1997 and co-heads the firm’s North America private equity business.

What were the highlights of your dealmaking in 2022? 

In 2022, our private equity healthcare franchise was active with a combination of new investments and platform expansions. The year began with new investments in exciting, innovative platforms including, Athenahealth, Innovacare and LeanTaaS. And during the year, we helped many of our portfolio companies create value, both in terms of improving patient outcomes and cost-of-care delivery, by driving consolidation and innovation within their respective sectors. There was a particularly large amount of activity around our healthcare information technology, or HCIT, portfolio, including just this week when LeanTaas acquired peer Hospital IQ.

What was the biggest challenge to completing deals in 2022? 

As in any period of value dislocation, it can be very challenging for buyers and sellers to find common ground. Sellers remember the still-recent past and buyers fear the future.

Completing investments in this type of environment requires a lot of conviction and creativity, the ability to invest across asset classes, and real, demonstrated value-creation capability. If you believe you can drive real operating value through valuation cycles, then the focus becomes long-term growth.

How do you expect the first six months of PE dealmaking in 2023 to compare with the last six months of 2022? 

Some semblance of stability in the equity and credit markets will go a long way toward bringing deal volume back and helping buyers and sellers find common ground.

Given the scale of dislocation, my instinct is that the first half of 2023 could look a lot like the second half of 2022. But as we head into the second half of 2023, I think we’ll start to see transaction volume resume, although likely at lower valuations and lower leverage multiples than 2020 and 2021.

One exception to that forecast could be growth companies that require primary capital to achieve their plans. Sponsors of those companies will need to be creative in funding and supporting that growth.

What will be the most important trends affecting your dealmaking in 2023?

We’re focused on a variety of interesting dynamics in the healthcare investment space, including:

1) Healthcare labor cost and availability. A lot of healthcare services businesses are facing real challenges between a scarce and expensive labor market, and payors that take a long time to adjust to that reality. These providers will need to analyze their business models and balance sheets (including potential technology investment) to figure out how to deliver strong patient care in the current cost environment. This type of dynamism will create challenges but also opportunities.

2) Depressed public market valuations. Many companies (particularly in the biotech space) fund their activities by accessing public markets. That funding source has always been somewhat volatile. The current downcycle creates a tremendous opportunity for more stable forms of private capital with the right clinical development expertise to support these companies. The active collaboration between our global private equity team and the team at Bain Capital Life Sciences differentially positions us to make these investments.

What’s keeping you up at night? 

We are likely headed for a recession at some point in 2023, which will continue to put pressure on equity valuations. Across our portfolio, we have been focused on positioning our companies to weather a potential downturn, but also to be able to capitalize on any resulting competitive dislocation.

What are you looking forward to most in 2023? 

2023 is going to be a very exciting year for life sciences investing across our diverse portfolio.  We have supported significant investments in R&D at many of our biopharma and medtech companies, and this will be an important year for clinical development and commercialization milestones. We also anticipate a continued emphasis on value-based care and purpose-built software solutions, again, pointing to LeanTaas and Hospital IQ. But, most importantly, the innovation these companies are driving will lead to significant improvement in patients’ lives – our core goal and mission as healthcare investors.

To learn more about Bain Capital’s healthcare investment strategy, read our profile here.