Your Primer to Healthcare Mergers and Acquisitions

Get Out Of The Game To Watch It: 5 Views Of The Future

Jul 8, 2015

by Tom Schramski

By Tom Schramski, PhD, CM&AA

Volume 2 Issue 14, July 7, 2015

As John Naisbitt noted in his classic Megatrends, “We are drowning in information but starved for knowledge.” In the healthcare marketplace, investors utilize complex models for assessing the ROI of potential acquisitions, but often lack the insight to estimate whether the new opportunities will persist.  Will urgent care centers remain a hot market?  Possibly.  But there are fundamental trends and questions underneath the surface that warrant consideration for future buyers and sellers.  Here are some to consider:

The Demand For Choice

As service/product payers and providers increasingly recognize, healthcare customers want choice and control, which research suggests is the foundation for a healthy lifestyle in the face of chronic disability and disease.  The current opportunities lie in options like urgent/retail clinics and self-directed long-term care.  The future is even brighter with the new consumerism that requires this element in the available options.

Private Will Drive Our Public Market

Our public healthcare markets are immature and thus ripe for a growing reliance on managed care organizations (MCOs) and private, entrepreneurial innovation. While many private equity groups (PEGs) and others have resisted investing in this highly concentrated environment, they are now being invited into economic partnerships with financial incentives, as in the IAH demonstration.

Being Lean, Pharming Out The Rest

Healthcare is beginning to embrace the lean mindset of Eric Ries et al. that has expanded with the Great Recession and healthcare reform – building customer-centric infrastructure in an à la carte fashion that encourages innovation.  Ergo, the continuing use of staffing companies and independent contractors with human resources that can be adjusted to a business cycle, as well as more comprehensive services like contract research organizations (CROs) that can offer diverse, affordable clinical trial support to emerging biopharm ventures.  This type of synergism will accelerate research and investment opportunities.

Enriching Outpatient Innovation

Each day it is clearer that many of the most significant healthcare challenges, ranging from primary care to substance abuse with co-occurring diagnoses, can successfully be treated in relatively cost-effective intensive outpatient environments (IOPs) where customized attention is given to social needs like stable housing. Innovation is occurring at a rapid pace with many more opportunities to appear in the next few years.

PEGs Evolve And Dive Deeper

PEGs have become an integral part of the healthcare marketplace and their traditional model of investment has changed with increasing competition, including operator hybrids and family offices.  Instead of maintaining an investment threshold of $1-2 million EBITDA or more, there are many that will have strong interest in companies with as little as $500,000 EBITDA.  Why?  Because a smaller, rapidly growing entity with great margins can trump even the short-term potential of a larger company that is stagnant with limited upside.

Forty years ago W.S. Merwin, our former Poet Laureate, published (Asian Figures), which included the following:

Get out of the game to watch it

Our reading of the poem?  Having a sense of the future and participating in it is more than stepping outside of day-to-day operations.  It’s taking a meaningful look at the undercurrents of the marketplace and the practical impact of continuing disruption on investment opportunities.

Tom Schramski

Tom Schramski PhD, CM&AA

Founder

Tom was the Founder and Managing Partner of VERTESS. He was a Certified Merger & Acquisition Advisor (CM&AA), consultant, and Licensed Psychologist with over 35 years of very successful national experience in the healthcare marketplace, including co-founding and building a $25 million behavioral health/disabilities services company. Tom represented sellers and investors across the healthcare spectrum and was recognized for his executive leadership in the 2005 Entrepreneur of the Year issue of Inc. Tom passed away in December 2018.

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