One theme I’ve heard a lot lately: Investors during the last down-cycle waited too long to think about opportunities to come out of the crisis. Now, many more are prepared to act.
“Things are on hold, but it would be a mistake to bury your head in the sand or hide under the table,” Aaron Sack, head of Morgan Stanley Capital Partners, told me. “Now is really the time to reach out to CEOs, as a human, and make sure people you respect are doing okay. It’s time to humanize our approach and business.”
Since the GFC, firms have built out their teams with operating partners and capital markets teams. Today sponsors are better able to parachute in and help their own companies in survival mode, and at the same time, actively think about how to put capital to work.
“I think we were really remiss and we didn’t take advantage at the end of the last crisis to be aggressive enough to invest early after the crisis,” Sack said. The group recently closed its $3.65 billion sale of a majority of Pathway Vet Alliance. Read more.
Although investors have varying lenses through which they view the world, one theme cutting across all sectors is resonating, Justin Doshi, a partner at Bain & Co, told me this week: “Broadly, there’s recognition that healthcare is an infrastructure. [Economically], it really is important for us as a country to invest in it.”
From a pure value perspective, some are evaluating opportunities where a company has gotten disproportionately hit in the near term, while others are focused on big structural changes that are tricky to pinpoint today, but may benefit certain segments down the road, Doshi said.
A third bucket is willing to endure short-term hits because they believe the long-term story is intact. That’s particularly relevant across non-essential providers facing patient cancellations due to the elective nature of their procedures.
(In the latter case, consider Webster Equity, which signed a deal earlier this week without bank debt to buy Gastro One, launching a new GI platform. The deal was not repriced when the downturn hit, a source told me. That’s conviction!)
If you’re looking at the health of providers coming out of the crisis, it’s not just the sector, it’s the geography that’s part of the equation, Richard Harding, managing director at Moelis, added.
“We’re in a unique moment of time. If you own a business that’s in a category that doesn’t happen to be in an area that’s been severely impacted, then that automatically puts you in a position of strength relative to the competitive universe,” Harding said.
Already, the Accelerated/Advanced Medicare Payment Program is proving impactful to healthcare providers looking to avail themselves of cash. In just one week, CMS approved $34 billion for Medicare providers.
Still, paying back the advanced payments could prove tough even when healthcare physicians providing elective procedures turn their lights back on, I’m told.
The million dollar question: “How do you serve that volume that comes back and gain share on the back end?” Doshi said.
PE-backed groups could be best positioned.
In Doshi’s view, the scale providers who are able to spread patient volume, manage administrative burdens and extend capacity will be the ones that can catch that demand at the backend of the crisis.
Big platforms are also best suited to lead the charge on behavioral changes coming out of the pandemic – such as integrating telemed. Telemed, if you think about it, would help free up more capacity to serve pent up demand coming out of this, he said.
Reg watch: With talk of a fourth stimulus underway, folks await more guidance around the $100 billion Provider Emergency Fund. Seema Verma, administrator of the Centers for Medicare & Medicaid Services, recently said that $30 billion of the fund will begin to be distributed this week, with funds going to Medicare enrolled providers and suppliers based on Medicare revenue. Some of that could fall into the hands of private equity, I’m told.
Check out my recent story for more on how sponsors invested in MSO agreements with physician practice groups may find caveats to accessing the Paycheck Protection Program under the CARES Act.
What covid-19 related implications are top of mind for you? Hit me up at email@example.com with any comments, tips or just to say hello.