The 300-member Connecticut chapter of the Association for Corporate Growth hosted its first health care conference recently at the Sheraton Stamford Hotel, attracting 75 attendees and schooling them via panel discussion on the new health care investment, merger and acquisition landscape.
The event was titled, “Healthcare: Investing Trends & Lessons Learned in Investing in Healthcare Companies,” and was sponsored by Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd., an audit, tax and advisory firm.
ACG Connecticut President Mark Campbell, a partner at regional tax, accounting and advisory firm BlumShapiro, welcomed the assembled. Lou Feuerstein, managing director and head of health care at event sponsor Grant Thornton in Iselin, N.J., served as panel moderator.
Panelists included Slava Girzhel, managing director at KeyBanc Capital Markets; Merton Gollaher, partner in the corporate and health care department at regional law firm Wiggin and Dana LLC; Alex Zisson, partner at health care venture capital firm Thomas, McNerney & Partners LLC; and Lance Beder, national leader of health care transactions at Grant Thornton.
Across an hour of presentations, questions and answers, the panelists painted a picture of medical investing in flux. Gone, the assembled learned, are the days when tweaking an existing service to save a few dollars will win investor confidence. And gone, too, are the business plans predicated on a quick, profitable idea no one else saw. Those days of low-hanging fruit are over.
Yet as Zisson noted, “We”™re seeing not a ton, but quite a few business plans take advantage of some inefficiency in the system.”
The assembled learned the current bullet points that earn investors”™ scrutiny in the medical world ”” and ideally their money ”” are seeking entrée to two major categories. One category is the product or service that can save a hospital a lot of money ”“ for example, getting a patient checked out after surgery a day earlier. The other is the product appreciably benefits patient health, with “appreciably” being the operative word. A device to monitor brain oxygen that added $80 to a $15,000 operation did not fly, attendees learned, despite its benefits.
Referencing a hospital system on Long Island ”” North Shore/Long Island Jewish Health Care ”” Feuerstein said it had grown from 11 to 22 hospitals and now included its own insurance company. “The game is changing and we have to change with it,” he said.
“Scale is a big driver today, because you can get rated and get access to institutional capital,” said Girzhel. “Banks have gotten fairly sophisticated selling this to investors.
“The cost to capitalize continues to be at fairly low levels historically,” he said. “You should be able to get more leverage today than in years past.”
An emerging trend in health care mergers and acquisitions is for the company hanging the sell sign to conduct a readiness assessment.
“There was no deal this year on the sell side where we didn”™t do a front-end diligence,” Gollaher said. “It”™s not at the same level the buyer will do it, but you don”™t want to hide the warts. Otherwise you”™ll slow the deal and deal fatigue can set in.”
“Investors and bankers are seeing the benefits of sell-side diligence as part of a cohesive go-to-market strategy,” said Beder.
Feuerstein assessed the health care industry as both complex and highly regulated, with rules sometimes ambiguous and sometimes applied retroactively. He said half the doctors in the U.S. today are hospital employees, with that number soon to reach 70 percent. The hospitals, he said, are reimbursed at higher rates than are physician practices. “Hospitals are on a rampage for physician practices,” he said.
Beder cited the infusion of technology and big data opening doors. “Whatever the challenge, there is opportunity,” he said. “Right now, they are using crazy algorithms seeking correlations between sickness, medications, location. What is the strategy? If you had all this data and could sell access to it, you could really rule the world.”
The Association for Corporate Growth, founded in 1954, is an association for professionals involved in corporate growth, corporate development and mergers and acquisitions for mid- to large-sized companies. The Connecticut chapter is one of its fastest growing chapters nationally with close to 300 professionals.
