Expert Opinion: PGP’s John Tiedmann Discusses Current Healthcare M&A Environment with Levin Associates

Levin: HOW OPTIMISTIC ARE YOU ABOUT THE MARKET, SCALE OF 1-5

JT: I said ‘four’, so I am optimistic but not overly so. I’m optimistic because the market seems to be settling into a new norm. Over the last 18 months, market players have made peace with valuations, particularly sellers and physicians who realize that multiples might be lower than where they were at their peak, but not likely to revert soon with the interest rate environment where it is. So, even if there was some trepidation with people playing a waiting game, the M&A machine is back up and running.

On the demand side, there are a number of private equity PE firms who are either looking for new platforms or have established platforms with cash available to complete M&A deals to drive growth. That’s obviously a tailwind: supply of capital and demand to put it to work.

The primary reason I did not say ‘five’ is related to the press around private equity and healthcare and the regulations that are starting to pop up, which I think will largely cause more harm than good, especially in the eyes of clinicians. For example, new regulations in California, and more and more talk at the federal level around the review of healthcare transactions with private equity. So, that’s a new factor that people need to get comfortable with.  

Levin: HOW WOULD YOU RATE PRIVATE EQUITY’S IMPACT ON HEALTHCARE?

JT: I personally believe that private equity has a very strong place in healthcare and can drive a lot of value and growth. A lot of the press and public opinion on private equity in healthcare tends to be less than positive, but the reality is physicians need relief from the administrative complexity and market pressures they face on a daily basis. They want to focus on caring for patients and the private equity model creates that opportunity.

Levin: WHAT FACTORS ARE CURRENTLY DRIVING ACTIVITY IN THE M&A MARKET

JT: Need for scale and private equity interest are two major factors. Healthcare tends to be shrinking in terms of price for physicians. If you look at Medicare long term, it is basically stable over the last 20 years whereas inflation, especially recently, has gone up significantly – meaning declining price on a real basis. Physicians are making less and they’re trying to figure out how to spread those resources to cover growing overhead, in particular wage inflation, complex regulatory burdens, growing demand from an aging population, shrinking numbers of healthcare providers and myriad other headwinds. At the same time, private equity is interested in solving these issues and lifting these burdens from the physicians, spreading resources over a wider base and using investments in technology and infrastructure to bolster efficiencies. All this leads to more time for physicians to spend with patients. 

Levin: WHAT CHALLENGES ARE FACING THE M&A MARKET?

JT: Obtaining financing is a challenge, for sure. Although, I think that’s becoming less of a challenge as people get more comfortable with the ‘new normal’. The regulatory/reimbursement environment is a hot button right now, to me. There’s a lot of press surrounding it that tends to slant negatively so that will be a challenge to overcome.

Levin: DO YOU THINK VALUATIONS WILL GO UP, DOWN OR STAY THE SAME OVER THE NEXT 12 MONTHS?

JT: I think they are going to stay mostly the same, for all the reasons that we discussed previously. The range that we’re currently seeing now depends on the specialty and the size of the practice. 

Read the original interview in LevinPro HC

Are you a journalist covering trends in Healthcare Services M&A? Reach out to our team at PGP for additional insights on the market: [email protected]