Banker Insights: 2024 Natural Products Expo West Takeaways

Natural Products Expo West: Fueling optimism in 2024

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The Hexagon Capital Alliance team is still buzzing from an action-packed week at the Natural Products Expo West 2024 trade show. In addition to showcasing innovative and trending products, Expo West acts as a vibrant meeting ground where established players, emerging brands, investors and service providers converge to discuss and shape the future of the natural and organic food and beverage (“F&B”) industry.


Beyond the high-traffic, high-energy trade show floor, the off-site networking scene was equally lively, with many companies hosting well-attended networking and post-show events. This bustling environment fostered strong connections which will undoubtedly fuel future collaborations.

Excitement Abounds in the Food & Beverage Ecosystem

Conversations with relevant industry players confirmed our own projection for a more robust M&A and capital raising environment in 2024 and beyond.

  • Increasing Transaction Activity: We connected with many of our strategic acquirer and private equity investor relationships at the show, all of which anticipate transaction activity to ramp up during the second half of 2024. Our conversations with M&A lawyers, accountants and other service providers yielded a similar sentiment. Finally, business owners that held off going to market last year are beginning to ask, “Is now the right time?” This sentiment is partially fueled by an expectation that the Federal Reserve will begin cutting interest rates later in the year.
  • The Rise of Outsourcing: The growing trend toward outsourced manufacturing, which allows emerging brands to remain asset-light and focus on sales and marketing, has led to strong interest in F&B contract manufacturing and packaging companies. Those with technologically advanced capabilities and formulation know-how have become prime acquisition targets.
  • Packaging is a Leading Indicator: Suppliers of packaging materials were encouraged by the volume of inquiries at the booths, and optimistic about requests for new artwork and designs leading up to the trade show. Contract manufacturers of F&B products continue to strengthen their positions in the supply chain, often recommending preferred packaging suppliers whose materials run best on their equipment.

A Taste of Tomorrow: Top Trends from Expo West 2024

Expo West remains the top destination for those eager to discover the future of consumer products. Whether it was observing the introduction of new, novel ingredients or meeting brands that cater to hyper-specific consumer needs, we saw (and ate!) it all.  Below are a few prevalent trends that piqued our interest:

  • The Rise of Gut-Friendly Products: Gut health continues to be a top priority for consumers, and Expo West showcased a smorgasbord of gut-friendly options. Probiotic sodas, kombucha on tap, and fermented food offerings were everywhere. This focus on digestive health highlights the industry’s commitment to providing functional solutions that go beyond basic nutrition.
  • Mushroom Mania: Mushrooms emerged as a superstar ingredient, gracing everything from savory meat alternatives to adaptogenic coffee blends. Whether enjoyed as a standalone supplement or creatively incorporated into foods and beverages, their versatility and potential health benefits are undeniable.
  • Protein Powerhouse: Protein-packed products were a dominant force at the show. From convenient ready-to-drink beverages to grab-and-go meat sticks and protein-rich snacks, manufacturers are catering to the ever-growing demand for convenient, high-protein options that fuel busy lifestyles.
  • Snack Attack: Expo West reaffirmed the snacking phenomenon, with a global twist. Manufacturers are incorporating exciting global flavors and functional ingredients into their snacks, appealing to adventurous palates. Additionally, nostalgic favorites are getting a healthy makeover, offering a delightful blend of comfort and innovation.
  • Packaging Prowess: A tale as old as time, consumers consistently demonstrate a propensity to purchase when the product packaging elicits a visual and emotional connection. Expect all major substrates of packaging materials (paper, plastic, glass, metal, green/sustainable) to continue innovating alongside every branded and private label product category.

For more information or questions, please contact our team:

Andrew Suen, Managing Director: asuen@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Brennan Anderson, Vice President: [email protected]

 

Healthcare: Monthly Insights – March

Healthcare M&A Insights

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Legislative and M&A Regulatory Updates


Strategies for Healthcare M&A Success in a More Regulated Environment: Commentary

The healthcare industry is witnessing a significant shift in its mergers and acquisitions (M&A) landscape. Regulatory changes and heightened scrutiny are impacting how healthcare organizations approach consolidation. Here’s a breakdown of key trends shaping healthcare M&A in 2024:

Focus on Drug Pricing

Bipartisan efforts target Pharmacy Benefit Managers (PBMs) to address rising prescription drug costs. Expect stricter transparency requirements and limitations on spread pricing practices.

Antitrust Investigations

The Department of Justice (DOJ) is investigating United Health Group and Optum’s recent acquisitions, raising concerns about potential competition issues. This could impact future deals, including United’s planned merger with Amedisys.

State-Level Scrutiny Intensifies

States like California (SB 184) are implementing stricter regulations requiring prior notification for healthcare M&A, mirroring existing federal requirements under the Hart-Scott-Rodino (HSR) Act.

Navigating the New Regulatory Landscape

These changes present challenges but also opportunities for strategic healthcare M&A. Here are some key considerations:

Early Legal and Regulatory Guidance

Early consultation with legal and regulatory advisors is important for navigating the complexities of the new M&A environment.

Transparency as a Cornerstone

Clearly demonstrate the value proposition of your M&A for patients and the overall healthcare market to address potential concerns.

Exploring Alternative Strategies

Consider partnerships or joint ventures that may face less regulatory scrutiny to achieve your strategic goals.

The Road Ahead: Potential for Future Shifts

The upcoming 2024 elections could bring changes to the federal regulatory environment. Staying informed and adapting your M&A strategy based on those potential shifts will be imperative for success.

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Banker Insights: Physician Services

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Market Dynamics Lead to Increased Hospital-based Physician M&A

Colorado Attorney General Strikes Agreement Impacting Anesthesia Partners

In a significant development within the physician practice groups industry, Colorado’s attorney general has announced an impactful agreement with Anesthesia Partners of Colorado, Inc. (USAP), affecting contracts with five hospitals in the state, including the Denver and Durango markets.

Implications for Middle Market Practices

While initial concerns may arise regarding financial partnerships, this agreement presents unexpected opportunities for middle market and lower middle market practices. However, we think this development may influence growth or exit strategies within the industry.

New Opportunities in Contract Management

Hospital systems are shifting towards smaller independent physician groups for contract management in areas like anesthesia, emergency, and radiology departments. The new contract growth should result in a fundamental increase in the valuation of the independent groups. 

Attracting Strategic Players and Investors

The potential for new contracts is likely to attract interest from strategic players and private equity investors in the healthcare M&A landscape

Navigating Antitrust Scrutiny

Antitrust scrutiny may impact smaller lower middle market targets, but they may now be seen as potential platform investments.

Maximizing Potential Upside

Owners of platform targets could see significant potential upside as first roll-over equity in the capital structure of “newco”.

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Market Monitor: Healthcare

Market Monitor: Healthcare

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Market Monitor: Healthcare

Making the right decisions for your business starts with having the most accurate and current information available. Our Healthcare  Market Monitor keeps you up to date on the events, trends, and market forces that shape and guide the industry.

  • In Q4 2023, U.S. healthcare services Mergers & Acquisitions (“M&A”) volume reached 183 transactions, with a total of 740 closed deals in 2023, representing a 24.4% decrease from 2022. In 2024, there is anticipation for increased M&A activity driven by private equity investors needing to offload assets and deploy capital. The average holding period among U.S. and Canadian private equity funds spiked to 7.1 years in 2023, the longest in 20+ years, paired with a record-high dry powder of nearly $1 trillion.
  • Further, with the Federal Reserve signaling the possibility of three rate decreases in 2024, that will hopefully loosen up the debt markets and drive additional activity.
  • As healthcare organizations have navigated the various challenge in today’s environment, those that have been able to differentiate and traverse the landscape are positioning themselves as prime acquisition candidates for both strategic and financial buyers.
  • In 2024, we see payer and patient pressure continue to drive the shift of care to outpatient settings as organizations continue to bend the cost curve and provide care in the lowest cost setting, and more organizations adopt technologies that create greater efficiencies.

For more information or questions, please contact our contributors:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Banker Insights: 2024 JPMorgan Healthcare Conference Takeaways

Healthcare Providers post-covid recovery & strategic expansion- JPMorgan conference insights

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The HCA Healthcare team attended the 42nd annual JPMorgan Healthcare conference last week in San Francisco. We wanted to provide you with some of the themes and observations present throughout the conference:

Navigating Post-Covid Challenges

  • Healthcare providers are experiencing strong patient demand as the industry emerges from the COVID-19 pandemic. To address ongoing challenges like staffing shortages and inflation, healthcare organizations are exploring creative solutions to reduce expenses without compromising care quality. One such strategy is strategic ambulatory expansion, which offers a more favorable cost structure.

Expanding Ambulatory Services

  • As healthcare volumes return to pre-pandemic levels, providers are considering expansion into ambulatory services as a strategic solution to control costs and improve patient accessibility. Large healthcare systems are actively pursuing these areas of expansion to balance the financial pressures of increased expenses and stagnant reimbursement rates.

Capitalizing on Financial Opportunities in Healthcare

  • The optimism around capital availability is palpable among healthcare leaders, especially following indications from Fed Chairman Powell about potential interest rate cuts in 2024. Such fiscal policies could stimulate mergers and acquisitions (M&A), which many see as vital to their growth strategies. M&A activities are not only about expansion but also about achieving cost efficiencies and staying at the vanguard of healthcare innovation

Leveraging AI for Operational Efficiency and Cost Reduction

  • The integration of Artificial Intelligence (AI) into healthcare operations holds the promise of enhancing efficiencies, improving patient outcomes, and reducing operational costs. The potential of AI to transform the healthcare landscape is a key point of interest, with many organizations exploring how best to integrate this technology.

Legislative Changes and Their Impact on Healthcare

  • Healthcare executives are closely monitoring legislative developments, especially those pertaining to Pharmacy Benefit Managers (PBMs), due to their significant impact on healthcare practices and costs. As regulations evolve, providers must stay informed to adapt quickly and ensure compliance.

Election Year Considerations for Healthcare Providers

  • With the election year in full swing, healthcare leaders are keeping a close watch on the primaries. The outcomes could signal a continuation of current policies or a shift back to those seen during the Trump administration, each with distinct implications for the healthcare industry.

For more information or questions, please contact our Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: doddenino@hexagoncapitalalliance.com

Market Monitor: Packaging Materials

Market Monitor: Packaging Materials

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Highlights:

Packaging Materials M&A volume in 2023 was in one word, Muted. Another completed rotation around the sun and out from the remnants rises a new year of possibilities and opportunities.  The general consensus is that 2023 was a rebuilding type of year as packaging business owners acclimated to the beginning of a new economic cycle.  After realizing blistering paces of growth ascending from the short-lived, pandemic-induced recession of 2020, most packaging businesses, like plethora of sectors, are down materially compared to 2021 and 2022.

That said, do not misconstrue for distressed.  Quite the contrary, the packaging universe and its participants remain one of the most investable by way of private equity and debt capital markets.  Whether its resin producers-to-paper mills or film & paper converters – the current business climate is such that broad price increases have hit a ceiling; simply having access to supply is no longer the advantage it was several years ago.  This forces the competitive battlefield for new business wins (and therefore organic growth) back to the fundamentals:  innovations & solutions, quality, customer service.

While 2023 earnings may be suppressed compared to prior years, business sentiment optimism builds every week as interest rate hikes have peaked, jobs picture remains strong and (at least) anecdotal evidence a soft landing is possible – though we won’t officially know until after the fact.  Until then, business owners, including the institutionally-backed, are biding their time, resetting the go-to-market picture until an opportune moment arises to capitalize on a liquidity event.

Looking at the data – 2023 transaction volume in Packaging Materials was approximately one-half either of the two years prior but still managed to reach 2020 transaction activity levels.  Not surprising as much of the would-be volume from financial sponsor-backed packaging companies sat on the sidelines in 2023.

Packaging Materials valuations have declined from the highs seen beginning from H2 2020 through H1 2022.  That said, we are in a very different economic cycle from several years ago and valuations remain robust from a long-term historical perspective; currently in-line with post-Great Recession averages.

We anticipate a modest recovery in Packaging Materials transaction volume in 2024 as many business owners right-sized their organizations in 2023 and have now charted the path in anticipation of the next cycle of growth.

 

For more information or questions, please contact our contributor:

Andrew Suen, Managing Director: asuen@hexagoncapitalalliance.com

 

Banker Insights: Physician Services

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Artificial Intelligence and Automation as Strategic Differentiators for Healthcare Provider Organizations

  • In today’s healthcare landscape, organizations are increasingly turning to Artificial Intelligence (AI) and automation to address ongoing operational challenges. These technological solutions offer a pathway to enhanced efficiency, improved clinical workflow support, and higher morale among employees and clinicians through the simplification of administrative tasks. 
  • The spotlight was on AI at the recent HLTH conference in Las Vegas, with industry heavyweights like Microsoft and Google unveiling new AI initiatives. These developments are marketed as key to easing the everyday administrative and clinical issues that healthcare providers encounter. 
  • By implementing these innovations, healthcare organizations can automate essential tasks, such as patient intake procedures and complex documentation processes, placing themselves ahead in the market. The adoption of AI not only improves operational effectiveness but also addresses potential staffing issues by automating routine tasks, which, in turn, can attract and retain clinical talent. 
  • Although the full potential of AI in healthcare is still unfolding, it’s critical for organizations to carefully consider the range of available technologies and their potential ROI. Those who successfully integrate AI and automation, not only establish a position of competitive strength but also stand to improve financial performance at a time of growing cost containment. 

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]