Skip to main content

Top investment bankers discussed the current market climate for healthcare investing following the record pace of 2021. They also shared their views on hot sectors, growth strategies and trading prospects for 2022 and beyond. Fred Levenson, Partner and Co-Head of McDermott’s Private Equity Partner, moderated the panel, with insights from:

  • Michael Dodds, Managing Director, Jefferies & Company
  • Mark Francis, Managing Director, Head of Healthcare, Houlihan Lokey
  • Simon Gisby, Director, Life Sciences and Head of Healthcare, Deloitte Corporate Finance
  • Philip Pucciarelli, Partner, Perella Weinberg Partners
  • Wyatt Ritchie, Managing Director, Cain Brothers

The panel’s top takeaways included:

1. All five panelists were very clear: in today’s rapidly changing transaction landscape, the player who arrives with work done up front leaves with a transaction in hand. “When you make the first call, be ready to run,” said Simon Gisby. Transactions happen faster than ever, especially with the convenience offered by Zoom. Startups need to invest upfront in consulting and strategy before starting any process. Everyone involved in the process of reaching an agreement should do as much work as possible from the start to show the seriousness of your organization and avoid unnecessary obstacles getting in your way to an agreement.

2. Another point that the five panellists emphasized is that healthcare will continue to be a strong industry in the future. Everyone had a rosy vision. Panelists highlighted the fact that even non-healthcare funds see healthcare as a smart investment. The wealth curve has left many well-capitalized investors considering healthcare investments, including family offices, companies like Google and private investors like Jeff Bezos. This is a wide range of players in the field and such interest should move things along quickly and keep valuations high.

3. Big companies like Google and Amazon are investing in healthcare and their commitments are likely to increase. Their involvement has helped create a landscape where there is more venture capital rushing to invest in the sector than startups, allowing new companies to emerge at a rapid pace. Entrepreneurial investors are also looking for health care. However, many startups could consider entering the space as disruptors, which would impact investments in traditional healthcare providers. Ultimately, a wide range of actors could create challenges. “There’s just a significant amount of capital chasing after too few assets,” said Philip Pucciarelli.

4. Investors with ready capital are plentiful in the field and will continue to be so for the foreseeable future. “There is an endless supply of dry powder,” said Michael Dodds. Investors are getting creative and it will be interesting to see if the mega-deals continue. There will be plenty of money coming in from a myriad of sources, including buyout money, organizers, Amazon Care and other investors, creating an interesting confluence of capital. This atmosphere should continue until 2022.

5. “There may be a judgment day in the next few years,” Wyatt Ritchie said. If debt markets crack, valuations could drop. Rising interest rates and the ripple effect of the conflict in Ukraine could also affect valuation and transactions. Inflation is the biggest risk as it will increase expense ratios and this can impact valuations. However, none of these factors are expected to have a devastating impact, and the private equity market is not expected to experience drastic changes.

6. The landscape has changed for potential buyers with the emergence of a wave of European investors on the scene. With insufficient deal flow in Europe, many funds have an incentive to deploy more capital in the US than in Europe. The fact that partners in the US are paid on a US waterfall instead of a European waterfall is a factor that creates incentives to do more and bigger deals in the US. The way in which European actors reach agreements could also influence the landscape of negotiation, by modifying the processes.

7. “Ask yourself, how do you save time, how do you save time in a process?” Mark Francis posed, to highlight where everyone should focus in the first and second round negotiations. CEOs and CFOs can’t stay on the sidelines and need to take the time to take the pulse of private equity investors, understand what family offices think of their space, and ask consultants for feedback. This gives their businesses an edge. Doing the legwork in the early rounds, maintaining strong people-to-people and business-to-business relationships, and having your ducks lined up before you begin any process is the path to victory.

[View source.]