Column: Bain’s Kara Murphy on the Amazon Effect, provider deal flow

  • Healthcare investors cope with evolving landscape
  • Blackstone deal for CARD underscores PE appetite for behavioral health assets
  • More than half of 265 PE healthcare deals in 2017 were in provider sector


It’s Thursday again, and healthcare activity hasn’t skipped a beat. Blackstone made a big bet on the nation’s largest autism-treatment company, but more on that later.

I spoke with Bain & Co Partner Kara Murphy this week about recent deal activity and big themes featured in the firm’s newly published Global Healthcare Private Equity and Corporate M&A Report 2018.

Broadly speaking, disclosed PE deal activity in the sector jumped to $42.6 billion in 2017, the highest level since 2007, as deal count climbed nearly 30 percent to 265 from 206 in 2016, according to Bain. Who thinks 2018 can top those levels?

Here are a couple takeaways from my conversation with Kara:

The Amazon Effect

A year ago, top of everyone’s mind was how the potential repeal of Obamacare could impact healthcare investing. That of course hasn’t happened … 12 months later, the No. 1 disruptive trend that seems to be keeping sponsors up at night: What are players like Amazon doing in healthcare?

Bain & Company, Kara Murphy, private equity
Photo of Kara Murphy courtesy of Bain & Co

Amazon, coupled with blurring boundaries between corporates like Humana and Walmart, Humana and Kindred, Cigna and Express Scripts, and CVS and Aetna, has made its way into sponsors’ diligence process, Bain’s Murphy said.

“We’re spending more and more time thinking about industry endgames, how different corporates might act and how that might shape an investment,” Murphy said.

And so besides increased emphasis on operational due diligence (rather than a reliance on multiple expansion), Murphy said investors are looking to underwrite higher entry multiples for deals by thinking about new angles that are based on how the healthcare landscape might evolve several years down the road.

At the same time, much like we’ve seen in PE — where funds seem to be disproportionately setting aside money for healthcare opportunities — corporates have a similar lens when looking at the ability to create value, Murphy said: “Healthcare bubbles to the top of a lot of companies’ screens.”

That said, it’s not just a question of whether Amazon is going to wipe you out, or rather, the threat of increased competition for assets from new tech and retail entrants like Apple, Samsung and Tencent. The offensive and defensive moves that nontraditional players are taking also may lead to new exit opportunities for sponsors, Murphy said.

“There is going to be some shakeout of what actually gets done and it’s going to be important for investors to sort through that,” Murphy said.

Behavioral health gains momentum in provider sector

For the third consecutive year the provider sector accounted for the majority of buyout activity in 2017, with the highest global disclosed deal value at $18.9 billion, Bain said. The sector also produced more than half the 265 deals during the year.

Retail health, physician practice management and even healthcare-heavy areas like home health have remained as hot as ever.

And while these areas show no indication of a slowdown, the high-profile deal for autism-treatment giant Center for Autism and Related Disorders underscores another theme Bain pointed to: investors eager to invest in behavioral health services.

Blackstone, following recent moves by KKR and FFL, emerged as the victor in the highly anticipated auction for CARD in an about $600 million deal. Read my story for all the deets.

Despite a supreme price from a multiple-of-Ebitda perspective, a handful of sources this week expressed their surprise in the outcome, as CARD is a small deal on a relative basis when looking at Blackstone’s fund size.

But as Murphy put it, the bulge brackets are realizing that waiting around some five to 10 years for CARD-like assets to become large-market opportunities also increases the likelihood of having to pay an even higher multiple. So why wait when the underlying drivers are so compelling today?

Read more about why healthcare investors are flocking to opportunities in autism treatment.

“It’s indicative of large funds being creative and going after small deals if that’s the biggest deal to get done in the space,” Murphy said. “It’s a great market. It’s a great company. And we’re still in the early innings.”

I’ve heard more is brewing in the sector. Those who lost out on CARD and Autism Learning Partners, the asset FFL claimed victory for, are surely scouring the market for other opportunities. Who’s next in line?!

Reach me at springle@buyoutsinsider with any feedback, tips or just to say hello.


Sarah Pringle, reporter at Buyouts