Healthcare M&A should be ‘robust’; Vistria’s Kip Kirkpatrick goes off-duty

PE Hub Europe discusses trends of PE firms investing in soccer clubs.

Happy Fri-yay, Hubsters! It’s Aaron here on the Wire.

My profiling of PE healthcare investing has led me to many intriguing conversations with professional healthcare investors and there seems to be no end in sight for my series. Earlier this week, I spoke with Rodney Altman and John Ryan, managing directors at Wells Fargo Strategic Capital – the PE and VC arm of the big bank. Altman and Ryan form the healthcare team of WFSC. I asked them both about the current and future M&A landscape, for healthcare specifically.

“I think M&A will end up being more robust, because as private company valuations come down, the public companies that are sitting on a lot of cash will be more aggressive,” said Altman. “Also, there has been a lot of capital creating new companies and chasing after assets that are often in the same category.”

He noted one example: addiction telemedicine companies that are often minimally differentiated.

“One could expect that we likely aren’t going to need so many variations of these companies, and there will be some consolidation amongst those companies,” he said. “And that’s just one example, right? I think we’ll see that across many sectors where there was a lot of startup activity.”

“In certain sectors of healthcare there are economies of scale that are important to realize, for example, in some of the new service-based models of delivering care,” said his colleague Ryan. “Many companies have been able to raise inexpensive capital and burn a lot of cash over the past few years. However, as that capital becomes less available and more expensive, I think M&A is a way for them to achieve those economies of scale and try to drive more towards profitability quicker.

“That dynamic in the market currently pushing companies to focus on the ability to achieve economies of scale is going to keep driving M&A, and there is also M&A that will continue to be driven by some of the longer-term important trends, such as the consolidation of physician practices. That’s just one example, but there are others.”

Dealflow. Keeping up with the theme, I had a chance to look at Firmex’s quarterly dealflow survey and some numbers jumped out at me. This survey analyzes the M&A landscape using internal data and both qualitative and quantitative feedback from 155 professionals involved in middle-market mergers and acquisitions, and found the following:

“In the summer of 2022, it’s clear that the M&A market has reached a crossroads and is slowing a bit, as participants take stock of which path the future will take,” said the survey. “Some fear the road will be much rougher from here. High cost of capital and an economic slowdown will erode the liquidity of buyers, while making sellers less attractive.”

The survey also quoted an unnamed banker who said this: “A fundamental market reset is underway,” said one investment banker in the United States. “Much more to come.”

According to some of the survey results, 32 percent of participants said that dealflow will increase over the next three months, while 39 percent said there will be no change.

Switching to valuations now, according to survey results – prices in the future are “getting gloomier.”

“Only 5 percent of respondents predicted valuations will head up, and 54 percent said prices will fall,” the survey said. “Six months ago, optimism reigned, with 35 percent predicting further increases in valuations and only 23 percent (correctly as it turned out) expecting a decline.”

Off-duty. Buyouts’ Kirk Falconer recently published a new edition of Off-duty, which provides a snapshot of top investors – including a few details about what they do when not chasing deals. This latest edition features Kip Kirkpatrick, founding partner and co-chief executive officer at Vistria. Here are some highlights:

If you weren’t in PE, what job would you like to have?

Professor of finance, business or history or a high school basketball coach.

What is your favorite song, album, performer or music genre?
I get teased about this relentlessly, but 1980s and 1990s rap. Flavor Flav and Public Enemy. I was raised on hip hop.

What was your most rewarding moment?
Honestly, I don’t think it has happened yet. Vistria is still just getting started in what we can do for our investors and the world around us. I’ll get back to you. Personally, my most rewarding moment has been raising four children with my wife, who was my high school sweetheart.

Read the whole story here.

Soccer and PE. My colleague across the pond, Craig McGlashan, editor of PE Hub Europe, examined the trend of PE firms either outright buying soccer clubs or becoming investors in them.

“Sixth Street’s purchase of an additional 15 percent of FC Barcelona’s domestic league TV rights in July was the latest move in a flurry of private equity interest in European football,” Craig wrote. “Despite some of the target teams having far from stellar performances on the pitch, private equity’s desire for a seat in the stands seems unabated.”

While some countries’ rules make it difficult for private equity firms to get into football ownership, there are plenty of other ways to profit from the sport, such as TV rights deals, Craig added.

This one makes for a great weekend read. You can access the whole story here.

That’s going to be a wrap for me! I am taking it easy this weekend, catching up on rest, playing basketball and of course, more dog sitting. I will be back on Monday for a fresh edition of the Wire, until then…

Cheers,
Aaron