Banker Insights: Medical Spa

Medical Spa

healthcare transactions

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Growing Medical Spa Market is Primed for Investment and M&A Consolidation

  • The Medical Spa market is attracting significant investor interest with an astounding projected CAGR of ~15% through 2030, high profit margins, and service line expansion. The sector is continuing to provide a wider variety of treatments available at price points appealing to a broader patient base. The highly fragmented industry is a ripe opportunity for consolidation by institutional investors and strategic buyers.
  • Beyond providing a broader service offering, patient demand and demographics (young and middle-age patients) are currently providing exceptional recurring revenues with repeat patient visits representing ~65% of visits. There is also an exceptional market opportunity that is largely untapped amongst men as they currently represent only 12% of Medical Spa patient population.
  • The sector also maintains positive reimbursement characteristics with essentially no exposure to both commercial and government payors. Many providers also see additional runway for further service line expansion across medical and non-medical treatments (e.g., Bio-stimulatory treatments, massages, and acupuncture), as technology advancements expand treatments, and more locations vertically integrate services.
  • And while the sector has many positive tailwinds supporting its growth, we do see a challenge through present and potential regulatory requirements and oversight. Corporate practice of medicine and non-physician provider supervision and regulation are likely to increase given the growth, which will require operators to adapt and be nimble in order to comply as more states impose greater regulations.
  • M&A and Private Placement activity in the Medical Spa sector is light relative to other sectors. However, with the sector’s continued growth, it has exhibited an increased velocity with the number of completed transactions doubling annually since 2021. As the sector continues to mature, transaction volume and values are expected to increase and achieve premium values.
  • Going forward, we anticipate growing private equity investment and interest in the space as the sector’s resiliency, growing market opportunity, and fragmentation provide elements that allow private equity to consolidate.

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: Healthcare

Healthcare M&A Insights

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Keys to Value Maximization

Commentary:

  • Founders and owners of Healthcare companies continue to see first-hand how strong the Healthcare M&A market has been over recent years simply by the number of inbound calls they are getting each day from interested strategic and private equity buyers.
  • Valuation multiples continue to hold strong for the right companies across numerous healthcare sectors. However, oftentimes we see too many business owners leaving money on the table simply because they were not adequately prepared when selling their company.
  • To avoid this common occurrence, we recommend the following steps when pursuing an outright sale or capital raise:

1.Get Your Financial House in Order

Companies with detailed and accurate financial statements always fare better than those with poorly compiled financials.  Buyers use poorly-prepared financials to their advantage when negotiating valuation.  Sellers should strongly consider using a reputable accounting firm to convert from cash-based to accrual-based statements, and invest in a Quality of Earnings Review ahead of a formal launch to the market.  

2. Metrics, Metrics, Metrics…

Alongside detailed financial statements, sellers should be prepared to provide detailed operational metrics to buyers.  This includes accurate billing and reimbursement history, changes in reimbursement rates over time across service lines, as well as any quality/outcome metrics appropriate for the practice going back several years.  Healthcare companies with more detailed and accurate metrics are typically cleaner for buyers to analyze and ultimately sell for higher valuation multiples.

3. Bench Strength

Many times private equity buyers will use perceived gaps in the management team as rationale to reduce the price they are prepared to offer to a seller.  Consider a company being sold for 10x earnings that needs to hire a key team member for $200k annual salary.  Many buyers will use that as justification to reduce the valuation by $2M.  Demonstrating that the right team is currently in place will help sellers avoid this situation.

4. Run a Process

This will sound self-serving coming from us.  But it is true.  Running a formal sale process will almost always yield a better valuation for the seller.  Even if you have only one chosen buyer in mind (as opposed to marketing the business to multiple potential buyers), the fact that you are working with a skilled M&A advisor and there is a perceived threat of competition, the buyer will likely end up agreeing to pay a higher valuation than they would have otherwise.

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: Veterinary

Veterinary

healthcare services transactions

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Pet Ownership Trends Accelerating Veterinary M&A Activity
  • Since the number of households with pets increased to ~70% in 2022, it is no surprise that interest and activity in veterinary clinics has continued to be strong and see steady growth. Pet expenditures have grown from $53.3 billion in 2012 to $136.8 billion in 2022. Additionally, 23 million households adopted pets during the pandemic and millennials show a higher adoption rate than older generations, providing a backdrop for sustained industry tailwinds.
  • As pets have increasingly become part of peoples’ families, owners have been choosing to spend more on the high-quality goods and services for them. Sustainability trends have also affected this industry, with pet food manufacturers looking to reengineer their products towards more sustainable ingredient sources to cater to the concerns of their consumers. The resulting expenditures on pets on a per household is expected to propel further market expansion.
  • This growing market, combined with a highly fragmented veterinary practice sector, has attracted substantial investor and strategic interest, as they see an opportunity to build scale and create greater operating efficiencies and regional market power.
  • M&A activity over the past few years has been strong, increasing to 169 transactions in 2021 equating to $121 billion in transaction value. In 2022, there were 119 transactions representing $130 billion in transaction value. In 2023, there has been more modest deal flow, however, we continue to see valuations hold strong with multiples of up to 20x EBITDA as competition for clinics remains intense.
  • With over 20,000 vet practices continue to be independently owned, favorable industry tailwinds, and early private equity success, we see a long and sustained runway for veterinary consolidation to continue and drive an active M&A market for the foreseeable future.

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

Banker Insights: Rehabilitative Therapy

Rehabilitative Therapy

healthcare services transactions

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Rehabilitative Therapy Market Tailwinds Drive M&A Activity
  • The U.S. rehabilitation therapy service market size is projected to soar from $50B in 2022 to ~$70B by 2029 – an amazing 40% growth rate. The most prominent driving forces for growth include the following factors:
    • Increasing active lifestyles
    • Aging population and associated chronic illnesses
    • Modality preference of both patients and providers to use therapy in response to an ailment or injury rather than using opioids or other prescription medications
    • Ongoing shift to place more importance on personal care including preventative care
  • Rehabilitation providers continue to benefit from an assorted payor mix comprised largely of commercial payers with steady reimbursement rates along with a smaller portion of private pay components which is continuing to lead to resilient financial performance in a post-COVID environment.
  • Additionally, the temporary struggles clinics faced during COVID has accelerated the pace of consolidation within the industry as practices look to gain strength in scale by increasing efficiencies and leveraging fixed infrastructure.
  • As such, M&A activity in the U.S. has exhibited strength, with 59 transactions in 2021, 52 acquisitions taking place in 2022, while YTD July 2023 saw 24 completed acquisitions.
  • Going forward, we continue to see sustained strategic and financial investor interest in the space, providing a healthy M&A environment. This is driven by the 38,000 clinics across the U.S., limited operators of scale, and favorable reimbursement and demand trends.

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:

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

  • Middle-market M&A volume generally began trending lower about one year ago and softness continued into the first half of 2023. Many completed transactions in H1 2023 tended to be carryover, or backlog, from 2022 deals well underway.
  • Transaction volume in Packaging Materials was down approximately 25% in H1 2023 as compared to H1 2022.  Not surprising and is representative of broader declines across various sectors of global economies.  Even so, transaction activity was by no means decimated, rather more representative of levels seen pre-pandemic.
  • For many packaging business owners, 2023 has been a stabilize and rebuild type of year coming off 2021’s and 2022’s pandemic induced highs.  While full-year 2023 M&A volume is likely to be muted year-over-year, we are optimistic the back half of 2023 will pick up steam and carryover to 2024.

For more information or questions, please contact our contributor:

Andrew Suen, Managing Director: asuen@hexagoncapitalalliance.com

 

Market Monitor: Transportation & Logistics

Market Monitor: Transportation & Logistics

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Highlights:

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

  • M&A transaction volumes in the Transportation & Logistics sector surged by around 30% YTD 2023 compared to the same period in 2022, driven in part by aggressive acquisition strategies from hybrid buyers, strategics owned by private equity.
  • Major retailers like Walmart, Target, Kroger, and Home Depot are investing significantly in high-tech fulfillment centers with automation and robotics to strengthen supply chains and meet the growing demands of e-commerce logistics and fast doorstep delivery.
  • HCA forecasts ongoing rapid growth in the logistics industry as retailers aim to catch up to Amazon’s early advantage.

For more information or questions, please contact our contributors:

Rich Anderson, Managing Director: randerson@hexagoncapitalalliance.com

Brandon Clewett, Managing Director: bclewett@hexagoncapitalalliance.com

Banker Insights: Dykema Conference Takeaways

dykema conference takeaways

healthcare services transactions

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The HCA Healthcare team attended the Dykema DSO conference last week in Colorado. We have identified the following key themes and observations for the industry and DSO M&A market:

General DSO Industry Trends and Observations
  • Industry leaders remain positive about the growth of the overall dental market and DSO growth and demand remains strong; specifically, Steve Thorne at Pacific Dental stated 2023 is the best year in the Company’s history.
  • The industry can do more to create awareness with politicians and other regulatory bodies that oral health is essential in supporting overall health, which should drive more volume and better reimbursements.
  • While leaders were optimistic about the growth and future of the industry, they were also realistic that there are current challenges around costs and staffing given the inflationary environment.
  • Keys to managing through this are investments in technology and providing employee flexibility.
State of DSO M&A Market and Current Themes
  • A lot of runway/white space left for consolidation with estimates of 80% of industry ending up as DSOs.
  • Same store sales growth and the concept of a “Super GP” practice are gaining a lot of attention with investors and viewed as a lever to drive topline and offset the current cost environment. 
  • The current macro environment created from rising interest rates and inflation is creating a narrower fairway for acquirers looking at potential targets and targets need to be strong operators. 
  • Valuations for mid-market DSOs holding relatively steady with transactions likely having more structure.

These are just a limited few of the observations and themes we witnessed as participants, and we would love to set up a time to discuss additional insights and perspectives and assist you in ensuring an optimal outcome for your practice.

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

Banker Insights: Dental Services

dental industry

healthcare services transactions

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  • As we enter the middle stage of the DSO consolidation across the U.S., we are seeing continued strategic and investor interest in the large and growing market as it approaches $200 billion by 2027.
  • Growth drivers include:
    • Increasing coverage and financing options for dental services
    • Pediatric and Medicaid reimbursement rates are improving
    • Increasing access to care through growing number of practicing dentists
    • Aging population requiring more frequent care
  • As the market continues to consolidate and mature, we are seeing investors place an increasing emphasis on differentiation in the form of specialty services and service extensions which leverage operators retail expertise. Further, we are witnessing operational rationalization occurring as consolidated entities streamline systems and improve automation to drive profitability. The acyclical demand and resiliency of the sector coupled with the current interest rate environment is driving exceptional private equity add-on transaction activity.
  • Strategics and private equity groups see positive macro tailwinds for the foreseeable future which has contributed to the strong transaction activity with 200 M&A transactions completed in 2021 and 2022 and has led 2023 to a strong start. With fragmentation still present in the market, we see a long runway for the consolidation play to continue. We also see a more favorable reimbursement profile relative to other PPM sectors, which helps prop up activity relative to those other sectors.

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

Banker Insights: Fire Safety & Life Security

fire safety & life security

fire safety & Life security
M&A transaction activity

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  • This year’s NFPA conference & expo was very well attended by exhibitors and attendees, as well as first-timers and long-timers.  The crowds were dense at exhibitor booths, education sessions, and workshops as participants eagerly gathered for the latest endeavors across the fire, electrical, and life safety sectors.
  • New, high-efficiency products, advanced software & technologies, and innovative technical processes were all on display.  What’s not to like about the Fire Safety & Life Security (“FSLS”) services landscape?  Its mission-critical nature, heightened scrutiny of fire & life hazards, and ever-stringent regulations, codes & standards are just some dynamics that have attracted significant capital inflows in FSLS companies.
  • The FSLS ecosystem is still in growth mode despite a 26% year-over-year decrease in M&A transaction activity.  Deal volumes have contracted after hitting all-time highs over the last two years, but remain on pace with pre-pandemic M&A activity.  We anticipate continued consolidation and accelerating transaction activity supported by favorable valuation tailwinds and competitive dynamics with financial and strategic buyers alike.
  • HCA looks forward to the 2024 NFPA Conference & Expo in Orlando … until then, some interesting U.S. and Canada data points are available for your download.

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

Andrew Suen, Managing Director: [email protected]

Brennan Anderson, Vice President: [email protected]