Banker Insights: Physician Services

PHYSICIAN services

physician services transactions

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]

healthcare physician services

The Halifax Group

Banker Insights: Life Science Consulting

life science consulting

healthcare transactions

Market Dynamics Lead to Explosion in Life Science Consulting M&A

Commentary:

Outsourced life science services providers have attracted enormous interest from private equity and strategic investors in recent years, and this trend is expected to continue. This surge in interest is a result of the ever-increasing complexity surrounding drug discovery and development (e.g., real-world evidence (RWE), genomics, mRNA), combined with a continually changing regulatory environment, which has further highlighted the demand for medical affairs professionals who can add value to the commercialization process. In addition, the COVID-19 global pandemic necessitated an increase in investment in R&D activities, as well as domestic pharmaceutical manufacturing capacity, by life science companies. As a result, outsourced life science consulting companies have experienced a significant increase in demand for services. These market dynamics are driving industry-wide attention from both private equity and strategic investors.
Key areas of interest include traditional pharmaceutical service providers such as contract research organizations, contract development and manufacturing organizations, companies providing pharmacovigilance, and third-party logistics providers, as well as newer breeds of specialized service providers, including those with a focus on specialty genomic therapeutics.
The pharmaceutical industry has experienced a shift in focus from traditional drugs intended to impact a broad patient population to specialized and precision medicines for a narrow and diverse target patient population. The development of these specialty drugs is primarily led by small-to-medium-sized life science companies that often require a greater degree of outsourced support from specific vendors.
M&A activity in the life science consulting industry has continued to remain strong since 2021. Healthy margins and low systemic risk make attractive targets for private equity and strategic investors. Over the past few years, transaction multiples for outsourced life science companies have steadily increased, reaching healthy low-to-mid teens EBITDA multiples, representing higher valuations than the overall market, reflecting strong interest in the industry’s potential for growth in the future.
Going forward, we anticipate continued strong private equity and strategic interest in the space as the growing demand for services across the entire lifecycle, coupled with a highly fragmented industry, provides ample opportunity for continued M&A activity.

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]

investment life science life science consulting m&A

Medical Spa

healthcare transactions

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]

investment m&A medical spa medspa

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

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

m&A veterinary market

Banker Insights: Rehabilitative Therapy

Rehabilitative Therapy

healthcare services transactions

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

rehabilitative therapy market

Family First Adolescent Services

Family First m&a transaction

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

m&A packaging materials

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

logistics industry transportation industry

Author: tais

Banker Insights: Physician Services

PHYSICIAN services