Consumer Healthcare: Checking the Pulse of Investors and Operators

The Harris Williams Consumer Group and Healthcare & Life Sciences Group surveyed consumer healthcare investors and operators in March 2020 and once again in September. We also maintain open and active dialogues with the sector’s leading investors and operators.

Here, senior bankers from both groups team up to discuss how sentiment has changed over that timeframe, how operators have responded to the challenges of the pandemic, and the single-most-important factor for investors seeking high-performing assets in the space.

Our survey shows that consumer healthcare operators are reporting greater optimism about economic conditions. Operators also told us they have rehired the majority of laid-off or furloughed employees, and that patient volumes are quickly returning to normal. Does that align with conversations you’ve had recently with leading providers in the sector?


Benjamin: Absolutely. The degree of optimism and recovery varies a bit between locations and specialties, but most subsectors within consumer healthcare have rebounded well since March. A few have seen a more dramatic comeback than others.

Smith: In particular, dentistry, dermatology, and medical spas were definitely impacted by the pandemic but have bounced back strongly. Those are all "hands-on" disciplines that require in-person evaluation and care, as opposed to areas of consumer healthcare that could be provided to some extent via telehealth. Overall, we’re hearing from operators and investors that own consumer healthcare providers that volumes are on track to reach 80% to 100% of their pre-COVID-19 levels. In some sectors, such as vision and fertility, certain providers are seeing even higher patient volume than they did pre-COVID-19.

The vast majority of operators said they would be very likely to complete add-on acquisitions in 2021. Likewise, around 90% of sponsors said they will likely complete a new platform deal in the space in 2021. Are there enough high-quality assets to go around?


Benjamin: The short answer is "yes." The longer answer is that it varies by subsector. Some are less mature than others in terms of consolidation and private equity investment, and provide more white space. The chiropractic and medical spa areas come to mind—they are both ripe for professionalization and the creation of large-scale, branded platforms. In other areas, such as dental or veterinary services, some of that consolidation and professionalization is already going on, but there are still plenty of opportunities for investors with well-developed theses and the right experience to generate significant value.

Smith: That’s the beauty of consumer healthcare: its sheer scale and the remaining level of fragmentation, even in more mature subsectors. It’s also been good to see the resilience of the sector proven out by COVID-19.

Back in April, roughly three-fourths of operators said they were implementing permanent operational changes in response to COVID-19. What are some examples you’ve discussed with clients and leads?


Smith: COVID-19 presented businesses with an opportunity to think more critically about their operational structures. One major area of scrutiny has been costs, for example, using lower-cost labor to perform lower-margin work. We’ve also seen operators turning to telehealth to treat a wider range of patient concerns. That’s more cost-effective, helps with social distancing, and can increase throughput in an environment where waiting rooms are being kept half-empty.

While roughly 70% of PEGs say their view of consumer healthcare has remained the same or improved since June, a small portion say their opinion of the space has suffered. What are they reacting to?


Smith: With any sector, it’s not likely that 100% of people are going to feel positively about it. I’m sure there are a handful of investors who don’t love the space. But the overwhelming majority believe in the continued consumerization of healthcare.

Benjamin: There was a period of time where the industry was under pressure, and there are operators that are still recovering, as well as investors looking at businesses that suffered. By and large, though, the snapback has been larger and faster than we expected back in March. As noted, 70% of PEGs are aware of the tremendous demand for these services and see the opportunity for further consolidation and professionalization in the sector.

What is the most critical factor investors should be considering when they are trying to find a great opportunity?


Smith: A proven management team, hands-down.

Benjamin: I couldn’t agree more. Smart, seasoned leadership makes the difference in environments as dynamic as this one. The pandemic has allowed management teams to prove themselves, and the best-run businesses have come through it well. The research validates the fact that PEGs put a real premium on the quality of the management team when looking at opportunities in the space.

To learn more about the Consumer Healthcare sector, see Consumer Healthcare: Creating Value by Crossing Industries, or contact our senior bankers.

About the Research

Harris Williams polled private equity investors and consumer healthcare operators in March of 2020 and once again in September.

Select Relevant Harris Williams Transactions

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Published October 2020

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