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]

 

Market Monitor: Aggregate, Concrete & Asphalt

Market Monitor: Aggregate, concrete & Asphalt

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Market Monitor: Aggregate, Concrete & Asphalt

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

  • Over the past six years, the aggregate market has demonstrated notable growth, with both total aggregate production and the average selling price per metric ton steadily increasing. Future growth will be propelled by substantial federal and state infrastructure funding. 
  • EV/EBITDA multiples of publicly traded companies remain high, and transaction activity has largely been dominated by strategic buyers. 
  • We expect government-funded infrastructure initiatives to speed up the consolidation process in the highly fragmented aggregate industry. 

For more information or questions,  please contact our contributors:

Brandon Clewett, Managing Director: [email protected]

Brennan Anderson, Vice President: banderson@hexagoncapitalalliance.com

Banker Insights: Home Health & Hospice

Home health & Hospice

Home care & Hospice transactions

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  • With two massive home health and hospice deals equating to $14 billion in transaction value closing in the first quarter of 2023, we expect deal volume for the remainder of the year to be robust given the interest shown by these large strategics for home health & hospice companies:
    • CVS’s acquisition of Signify had an Implied Enterprise Value / TTM EBITDA multiple of 54.2x
    • Optum’s acquisition of LHC had an Implied Enterprise Value / TTM EBITDA multiple of 22.4x
    • Option Care Health’s announced deal with Amedisys has an Implied Enterprise Value / TTM EBITDA multiple of 10.7x
  • The pandemic accelerated the preference to age in place and provide alternative care models to vulnerable patients. Aging populations and the shift to lower cost settings continues to provide a growing market opportunity. All these factors serve as the backdrop to keep strategic and investor interest high. Further, an ever-changing regulatory environment, tight labor market, and high interest rates will lead some operators to seek suitors creating a healthy push-pull dynamic. 
  • We also expect the numerous private equity-backed entities to continue the trend of smaller, add-on acquisitions as they seek to maximize return on their platform investment while waiting for interest rates to come back down and time their monetization event accordingly.
  • Home health and hospice is continued to be viewed as an essential means to further coordinate care in a value-based shift, and accomplish the broader three objectives of healthcare, mainly: improve outcomes, lower costs, and improve patient experience. As such, we believe the highly fragmented and growing sector will continue to consolidate and witness strong transaction activity.

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: Healthcare Staffing

Healthcare staffing

Healthcare transactions

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  • Historically, outsourced staffing services have been used to fill a temporary or small gap in a healthcare provider organization’s clinical needs. With the onset of the pandemic and associated provider burn-out, along with aging clinicians retiring, these healthcare delivery groups are seeing staffing agencies as a more sustained solution as clinical staffing shortages persist. 
  • In our conversations with providers and investors, healthcare staffing represents a strong and growing market, which is driving increased interest and valuations, and is leading to more consolidation within the highly fragmented sector. Further contributing to the activity, many owners are seeking an exit at this time as they see a ripe opportunity to monetize the asset they built or seek an investor to help them achieve the next level of success.
  • This is illustrated by the active M&A market within healthcare staffing. From 2021 through YTD 2023, nearly 100 transactions completed with strategics and private equity being equally active in seeking targets and completing transactions.
  • Additionally, with pricing (increased billing rates) and volume figures increasing for staffing agencies, it is providing exceptional market dynamics for owners to receive premium valuations, should they choose to pursue a strategic or financial partner.
  • With staffing shortages appearing to be the new normal for all healthcare delivery organizations, we expect strategic and financial investor demand for healthcare staffing organizations to remain high through 2023 and beyond.

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: Material Handling

material handling

case study- transactions

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  • The global automated material handling equipment market size was valued at $35.8 billion in 2019 and is projected to reach $56.5 billion by 2027 (Fortune Business Insights).
  • The key drivers of rising demand for automation include global and supply chain disruptions, increasing customer demands on delivery dates, rising omni-channel fulfillment requirements, increased focus on warehouse safety, and scarce and increasing costly labor resources.
  • A variety of warehouse robotics are now available (AMR, ASRS, AGV, etc.) and although different in specific capabilities, as a whole, robotics are transitioning warehouses to faster, safer, more precise facilities across a variety of industries.
  • From a strategic planning and Mergers and Acquisitions (M&A) perspective, the automated material industry is still extremely fragmented and positioned for growth through consolidation at attractive multiples (especially for those with differentiated solutions).

For more information or questions, please contact the team:

Brandon Clewett, Managing Director: [email protected]

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Banker Insights: Healthcare IT

Healthcare IT

Healthcare IT transactions

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  • The Healthcare industry is shifting to a value-based care model, which aims to deliver more effective care at a lower cost. We expect that providers will continue to pursue acquisitions of healthcare IT (HCIT) targets to decrease costs while maintaining a high standard of care. 
  • A shortage of labor and rapidly rising wages remain as the main pain points for providers. Private equity has identified this dynamic, and invested in provider IT solutions that optimize operations and improve margins. 
  • Revenue cycle management (RCM) and ancillary companies that improve collection rates and lower the costs of complex reimbursement collections, remain highly desirable acquisition candidates by both strategic and financial buyers. 
  • Outside of provider-focused HCIT, bio-pharma IT solutions that aim to improve workflow productivity, project management and reduction in clinical trial times, continue to remain a bright spot for deal activity. 

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: Physician Services

PHYSICIAN services

physician services transactions

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  • Investor interest in physician practice management remains elevated and 2023 represents an excellent time for physician organizations to consider adding a strategic partner.
  • While the Covid-19 pandemic is over and physician organizations are returning or exceeding pre-covid volumes, operating challenges created by the pandemic, such as staffing, and enhanced patient acuity remain. These persistent operating conditions, coupled with sustained investor interest, are providing physician organizations with the opportunity to strengthen their organization by adding a strategic partner at attractive valuations.
  • These partnerships provide an opportunity to affiliate with a larger entity or remain independent while improving its financial strength, enhancing revenue, and adding greater efficiencies. It can also help accelerate an organization’s ability to transition to greater value-based revenue from fee-for-service.
  • Furthermore, these transactions provide an opportunity for physician owners to monetize a portion of the equity they have built over the years of serving as a physician and will typically be treated as capital gains vs. personal income.
  • Physician organizations that are interested in strengthening their position in today’s dynamic healthcare environment should consider all the advantages a strategic partner can bring.

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]

Announcement – Daren Oddenino Joins HCA


Announcement - daren oddenino joins hca

Hexagon Capital Alliance Expands Its Healthcare Investment Banking Practice

Hexagon Capital Alliance is pleased to announce it has recently hired Daren Oddenino as a Director for the firm’s rapidly growing healthcare practice.  Daren is an accomplished healthcare investment banker who has over 17 years of capital markets, advisory, and banking experience across the spectrum of M&A, recapitalizations, and debt and equity capital raises for both public and private entities.  His focus within healthcare includes Multi-Site, Physician Practices, Behavioral Healthcare, Home Health & Hospice, Healthcare Staffing, and Healthcare Technology.

“We are thrilled to have Daren join our growing healthcare practice,” said Paul Kacik, Managing Director and Head of Healthcare Investment Banking at Hexagon Capital Alliance.  “He brings to the firm a wealth of experience serving as a trusted advisor to founder and clinician-owned healthcare companies.  This comes at a time when M&A transaction activity in the healthcare sector remains extremely strong.  We look forward to working with Daren as an integral part of our team.”

Daren Oddenino commented, “I am honored to join the Hexagon Capital Alliance team.  The firm has a long-standing reputation as a leading investment banking advisor with extensive relationships in the middle-market.  I look forward to working alongside the team as we accelerate the growth of the healthcare practice.”

Rich Anderson, Managing Partner, added, “The addition of Daren brings 50 years of collective sector experience within Hexagon’s healthcare team.  Paul Kacik, Brad Erhart, and Daren Oddenino, Hexagon’s senior healthcare bankers, are well-suited to advise founders on how to prepare for and execute a transaction that meets the needs of stakeholders and the business.”

Prior to joining Hexagon Capital Alliance, Daren was a senior banker at multiple firms with leading healthcare practices, including J.P. Morgan, Cain Brothers/KeyBanc Capital Markets, and Ziegler.  He has a bachelor’s degree in economics from the University of Utah. 

To reach the Healthcare Services team, please contact:

Paul Kacik, Managing Director: [email protected]

Brad Erhart, Director: [email protected]

Daren Oddenino, Director: [email protected]