Eric Kim of VSS: Covid accelerated adoption of healthcare technologies

The pandemic 'broadened the mindsets of healthcare leaders to be open to technology and flexible capital solutions.'

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 Eric Kim, principal of VSS Capital Partners. Kim has been with the firm less than a year and previously was managing director at Optum, part of the UnitedHealth Group family of businesses.

What were the highlights of your healthcare dealmaking in 2022?

We are very excited about our newest investment in the physician practice management space, Center for Rheumatology (CFR), as we are looking to establish CFR as one of the leading rheumatology groups in the country. Beyond that, we completed multiple add-ons across most of our healthcare portfolio companies. Lastly, we also sold Caravan Health to Signify Health, and were able to realize additional value when Signify was subsequently purchased by CVS/Aetna and we retained some of our stake in the business.

What was the biggest challenge to completing healthcare deals in 2022?

Finding quality deals at reasonable prices. While we source many of our lower-mid-market deals through proprietary means, we also were involved in some processes where we remained disciplined on price and were outbid by some investors who were newer to the healthcare space. With the markets pulling back, we do expect this trend will subside going forward, as we believe investors with less healthcare experience will go back to investing in their core industry areas.

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

In our pipeline, we saw more deals in 2022 than in 2021, and we expect that to continue into 2023. Our structured capital offering is particularly appealing in the type of dislocated market we are currently in and where there are potentially wide bid/ask spreads in the market. We provide flexible equity and debt capital from the same fund, and we work with founders to find the most suitable capital structure to meet both the company’s strategic growth plans and the founder’s needs.

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

We are focused on value-based care and the continued expansion of healthcare technology. Aside from all of its obvious difficulties, covid has been a driver of both of these. On the value-based care side of things, it gave a glimpse into the benefits of a business model not primarily dependent on procedures and bed utilization. When it comes to healthcare technology, covid not only accelerated the adoption of immediately relevant technologies like telehealth, but it also broadened the mindsets of healthcare leaders to be open to technology and flexible capital solutions more generally, benefiting the overall healthcare technology market.

What’s keeping you up at night?

Healthcare is typically very resilient to recessionary environments, but regardless, the risk of a prolonged recession remains a concern. Still, VSS has invested in and supported founders through multiple economic and recessionary cycles and we are well prepared to do so again, if needed.

What are you looking forward to most in 2023?

While these types of markets can be challenging, we believe that strong companies and founders will persist in any market, and we are excited to find and support those founders in scaling their companies to the next level.

For another healthcare outlook Q&A, see our interview with Bain Capital’s Chris Gordon.