Commercial banks move to capture a piece of healthcare M&A market

  • Fifth Third Bancorp agreed to buy Coker Capital
  • KeyBanc Capital acquired Cain Brothers
  • Growing interest in adding healthcare operations

In a short hiatus from healthcare private equity earlier this week, I, completely by chance, witnessed the SpaceX rocket launch into space as I was cruising through the Everglades on an airboat snapping shots of alligators and other wildlife.

The universe of healthcare was slightly less eventful and Elon Musk is pretty hard to top. What we did witness was another commercial bank moving to capture a piece of the healthcare dealmaking market.

Cincinnati’s Fifth Third Bancorp said Monday it had agreed to buy Coker Capital Advisors, a healthcare-focused boutique M&A shop founded less than a decade ago.

The transaction comes after KeyBanc Capital Markets in October closed its acquisition of Cain Brothers, a New York healthcare investment bank.

In another deal, Daiwa Securities Group last year bought Signal Hill, a Baltimore boutique investment firm that advises on deals in various sectors, including healthcare services and healthcare IT. The Japanese investment bank at the same time bought New York’s Sagent Advisors, combining the pair of M&A banks.

Coker, for its part, wasn’t entertaining a sale despite having received inbound interest in recent years, but the opportunity to combine with Fifth Third was unique, said Dan Davidson, one of five managing directors who helped lead the firm since its founding.

Importantly, both operations are team-oriented, Davidson said, adding that the firm will continue to operate independently under the Coker brand in a similar manner to Cain under the KeyBanc umbrella. The shop encompasses about 15 members and operates out of Atlanta, Charlotte and New York.

Besides a good cultural fit, the combination makes sense because Fifth Third holds significant loan commitments in healthcare, Davidson noted.

While Davidson declined to comment on financial terms of the transaction, it’s fair to say investment banks are valued far differently than a PE shop scooping up the latest dental services company.

In some instances, the process of buying a boutique investment firm is what sources have likened to acqui-hiring, which is basically a fancy way of saying a company is acquiring another company to recruit its employees. In this type of transaction, there’s typically no up-front cash component; rather, employees are guaranteed a certain salary/bonus for X number of years, they said.

Acqui-hiring is more common when a group is being carved out of a larger organization as opposed to a stand-alone acquisition, sources said. Quality groups that drive a lot of profit are unlikely to find such a deal appealing, they added.

Other deal structures for I-banks have been more complex. There might be a few components, including an up-front consideration, an annual stay bonus for employees that stay with the firm, as well as an earn-out contingent on reaching certain financial metrics, one source noted.

While Coker and Cain are no longer available, there are many other regional and boutique healthcare M&A shops. At the same time, sources have said there’s growing interest in adding healthcare M&A operations from entities ranging from accounting firms to other regional or specialized banks.

While some argued that it’s that interest that’s fueling acquisitions of smaller boutique M&A firms, another source opined that it typically signals a peak in the market. Attractive groups are selling because they’re “getting a lot of money,” while others may opt to because they aren’t “bullish about their future,” the source said.

What do you think? Has your firm, or another you’ve heard about, received inbound interest? What are the reasons to consider or stay away from such a deal?

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See ya next week!

Photo of Sarah Pringle, reporter at Buyouts.