As 2019 begins, Managing Directors Cheairs Porter and Turner Bredrup are confident in the interest their industry will continue to attract. In particular, they see investor attention focused on multi-site healthcare services (both retail and physician group focused), pharmaceutical supply chain services, wellness and chronic disease management and healthcare IT.

Below, Porter and Bredrup discuss which key trends they believe will impact the healthcare and life sciences industry (HCLS) in 2019, and what management teams, strategic buyers and private equity investors should be thinking about as the year progresses.

Looking Ahead

Within your industry, which sub-sectors do you anticipate experiencing the highest levels of interest? Why?

Porter: One is multi-site healthcare, including behavioral and physician practices such as dental, vision, dermatology, veterinary and orthopedics. Across those areas, we expect to see continued consolidation and strong interest from strategic buyers.

We’ve also seen several major deals that are realigning the pharmacy landscape, and there has been explosive growth in specialty pharmaceuticals. Pharmaceutical supply chain services are very active as well, with big pharma looking for ways to outsource. That’s a truly global business with interest in every corner of the world.

Bredrup: I would add wellness and chronic disease management. Corporations, payors and other entities are working to enhance the health of their "populations," whether that is employees or beneficiaries. 

Healthcare IT will also continue to be very active as everything from medical records to treatment protocols becomes more digitized. In the future, providers with superior IT platforms will be better able to understand their patients and assume risk in the form of an accountable care organization (ACO) or other entity.

Which metrics are you watching most closely in relation to the performance of companies in your industry?

Porter: This is difficult to answer, since it’s so different for each sector we cover. At the highest level, we look at referral source/customer and payor concentration, out-of-network providers and profit margins versus comparable companies. 

Which industry-specific trends or issues are you watching most closely?

Porter: There is a general trend to reduce the cost of healthcare, so that is a common thread. Superior patient care and outcomes are a common theme as well. Reimbursement rates are something else we watch. 

Bredrup: The White House’s push for pharmaceutical pricing transparency will influence many aspects of the pharmacy world, including pharmacy benefit managers (PBMs), payers, distributors and manufacturers. Also, the focus that the opioid crisis has been getting recently is helping drive adoption of new therapies and care models.

Given the length of the current bull market, what should private companies, private equity groups and strategic buyers be thinking about?

Bredrup: Management teams should be thinking about the balance of execution risk and capturing future value. The market is paying for future value now—as long as it is demonstrable.

Porter: Private equity groups should be focusing on great growth stories. Organic is best, but values may come down, so acquisition platforms are also attractive. For strategic buyers, competition in the market should be top of mind: Private equity groups continue to be very aggressive.

Which qualities make acquisition targets most appealing in a more challenging operating and investing environment?

Porter: Quality of management and cultural alignment is the key to a well-run healthcare services business in any environment, but particularly when things get more challenging.

Bredrup: Absolutely. Most businesses can’t really differentiate on price, so quality and consistency drive market share growth and lack of regulatory risk.

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