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.

M&A in Healthcare Services: Q1 2024 Trends

  • U.S. healthcare services M&A activity in Q1 2024 saw a 10.8% decrease in volume compared to Q1 2023, reaching 174 transactions.
  • Despite the overall decline, physician medical groups remained the second-largest segment by transaction volume, highlighting continued consolidation in the sector.
  • The trend towards smaller, add-on deals within physician services suggests a shift in M&A strategy.

Focus on Outpatient Care

  • The healthcare industry continues to prioritize outpatient care due to factors like:
    • Increased cost-effectiveness for both providers and patients.
    • Growing specialization within the medical field.
    • A focus on preventative care and early intervention.

M&A Outlook

While facing challenges like staffing shortages and stricter regulations, the pace of M&A activity is expected to pick up in the healthcare sector. This is driven by:

  • Anticipated interest rate decreases.
  • Rising valuations of public healthcare companies, making them more attractive acquisition targets.
For more information on healthcare M&A trends, visit Healthcare M&A News. 

If you have any 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 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]

 

Market Monitor: Apparel, Accessories & Footwear

Market Monitor: Apparel, Accessories & Footwear

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Market Monitor:
Apparel, Accessories & Footwear

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

Activity Heats Up in Apparel, Accessories & Footwear Despite Economic Challenges

Consumers have faced economic headwinds with inflation and high interest rates, leading to a slowdown in Apparel, Accessories & Footwear (AAF) spending in 2023. However, this hasn’t stopped M&A activity in the sector.

Valuation Metrics Rebound

While transaction activity has slowed, valuation metrics for publicly traded AAF companies have rebounded to pre-downturn levels (average of 2021-2023). This suggests continued investor confidence in the long-term potential of strong AAF businesses.

Success Through Strategic Management

Recent earnings reports from Q4 2023 reveal positive surprises from several AAF companies. Notably, casual fashion brands like Gap, American Eagle, Abercrombie & Fitch, and Carter’s exceeded expectations. Additionally, discount retailers like Kohl’s, Burlington, and Dillard’s also reported strong earnings.

A key factor in these successes appears to be effective inventory management, allowing companies to offer competitive prices in a cost-sensitive market.

M&A Outlook: Strong Players Remain Attractive

Well-positioned AAF companies with characteristics like high growth potential, strong margins, and efficient inventory management are likely to remain attractive targets for both strategic and financial buyers. These companies can expect premium valuations in M&A activity.

For more information or questions,  please contact our contributors:

Rich Anderson, Managing Director: [email protected]

Tyler Dale, Managing Director: tdale@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Brennan Anderson, Vice President: banderson@hexagoncapitalalliance.com

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]

Market Monitor: Food & Beverage

Market Monitor: Food & Beverage

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Market Monitor: Food & Beverage

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

Reflecting on 2023: Economic Impacts on M&A

In 2023, the US food and beverage industry faced its fair share of economic challenges, from fluctuating interest rates to geopolitical tensions, inflationary pressures, supply chain disruptions, and more. Despite these hurdles, the industry exhibited resilience, with strategic M&A deals shaping its trajectory. The U.S. Food & Beverage M&A volume was down a modest 7.6% from 2022 levels, compared to a decrease of 23.0% in total U.S. M&A volume over the same period.

Spotlight on Resilience

Amidst economic uncertainties, companies in the food and beverage sector showcased remarkable resilience. By adapting to evolving consumer preferences and market dynamics, these businesses demonstrated their ability to thrive in challenging environments.

Opportunities

Certain sub-sectors within the food and beverage industry emerged as focal points for M&A activity. Companies in the fragmented Value-Added Ingredients and Flavors & Fragrances sub-sectors remain attractive targets, with those maintaining strong R&D expertise commanding premium valuation multiples.

Recent examples include SK Capital’s acquisition of J&K Ingredients, Redwood Holdings’ acquisition of Newly Weds Foods, and Archer-Daniels-Midland’s acquisitions of both Revela Foods and FDL.

Redefining Manufacturing Dynamics

The outsourcing of manufacturing processes has reshaped the industry landscape, enabling companies to optimize operations and focus on core competencies like sales and marketing.

Recent examples include Clayton, Dubilier & Rice’s acquisition of Shearer’s Foods and Sunny Sky’s acquisition of Bevolution.

Looking Ahead: Food & Beverage M&A Trends

As we look to the future, early indicators suggest a more favorable M&A deal-making environment in 2024 based on anecdotal observations from our own processes and conversations with business owners as well as buyers, both strategic and financial. 

For more information or questions, please contact our contributors:

Rich Anderson, Managing Director: randerson@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Banker Insights: Physician Services

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: Online Retail

Market Monitor: Online Retail

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Market Monitor: Online Retail

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

Online Retail Sector Resilience in 2023

In the fourth quarter of 2023, retail sales in the United States surged to $1,831 billion, marking a notable 2.7% increase from Q4 2022.

Online sales in the US showcased remarkable resilience, reaching $285 billion, which accounted for approximately 15% of total retail sales. This surge represented a significant 7.5% increase from fourth quarter of 2022, reflecting a robust compound annual growth rate (“CAGR”) of 12.6% since fourth quarter of 2020.

Analysis

Throughout 2023, the online retail M&A landscape experienced a subdued trend.

Factors Impacting M&A Activity

Various factors, including inflation, escalating interest rates, tightened capital markets, and concerns over a potential recession, contributed to a decline in the number of deals.

Opportunities

Despite prevailing challenges, resilient brands are thriving and capitalizing on opportunities to gain market share from smaller competitors.

Expert Perspective

Consumer bankers note that brands excelling in the current market environment stand out significantly from their counterparts.

Implications for Investors

These successful brands possess the unique ability to attract multiple investors and suitors, resulting in extraordinary valuations.

For more information or questions, please contact our contributors:

Rich Anderson, Managing Director: [email protected]

Tyler Dale, Managing Director: [email protected]

Johnny Sherwood, Director: [email protected]

 

Market Monitor: Outdoor & Recreation

Market Monitor: Outdoor & Recreation

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Market Monitor: Outdoor & Recreation

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

Outdoor & Recreation Sector Resilience in 2023

  • Surge in Transaction Volume: Demonstrating resilience, the Outdoor & Recreation sector experienced a surge in transaction volume in the latter half of 2023, rebounding from a slower start earlier in the year.

  • Shift in Deal Dynamics: While fewer major transactions occurred in 2023, there was a healthy number of smaller to medium-sized deals completed in the sector.

  • Divestiture Trend: Notable trend was observed in the divestiture of Outdoor & Recreation brands by former brand consolidators, focusing on core brand and product management strategies.

  • Strategic Buyer Dominance: More than 80% of acquisitions in 2023 were orchestrated by strategic buyers, underscoring the sector’s robust growth.

Investor Confidence and Optimism

  • Discerning Investors: Discerning investors express confidence and optimism through continued minority investments in Outdoor & Recreation sector companies.

  • Positive Momentum: The sector anticipates a trajectory in the first half of 2024, reminiscent of the successful trends observed in the second half of 2023, signaling resilience and potential for continued growth.

  • Proactive Adaptation: Companies are proactively adapting by fine-tuning inventory management and strategically navigating the promotional and marketing landscape for enhanced efficiency.

Anticipated Benefits from the 33rd Summer Olympics

  • Global Spectacle: The eagerly anticipated 33rd Summer Olympics set to take place in Paris this July.

  • Diverse Sports Introduction: Beyond traditional sports, the Olympics will introduce additions such as sport climbing, surfing, and skateboarding.

  • Unparalleled Platform: The Olympics promise to provide an unparalleled platform, offering substantial benefits to brands across the entire Outdoor & Recreation sector.

  • Amplified Exposure: The global spectacle of the Olympics is poised to amplify exposure for the dynamic Outdoor & Recreation segment and its brands.

  • Contributing to M&A Activity: The Olympics contribute to a brighter future for Outdoor Recreation merger and acquisition activity.

For more information or questions, please contact our contributors:

Rich Anderson, Managing Director: randerson@hexagoncapitalalliance.com

Tyler Dale, Managing Director: tdale@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Brennan Anderson, Vice President: [email protected]

 

Market Monitor: Personal Care

Market Monitor: Personal Care

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Market Monitor: Personal Care

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

Personal Care Industry Trends: Navigating Deceleration in 2023

  • After hitting record levels in 2021, transaction volume in the Personal Care industry continued to decelerate in 2023 due to a variety of factors. 
  • The factors influencing this deceleration, include rising interest rates, geopolitical tensions, inflationary pressures, and persistent bid-ask valuation spreads.

Consumer Priorities Reshaping 2023: Focus on Health & Wellness M&A

  • While 2023 experienced a pullback in discretionary spending across many product categories, consumers continue to prioritize their own health & wellness.
  • This trend is evidenced by a year-over-year increase in M&A volume for Vitamins, Minerals & Nutritional Supplements companies. 

Beauty Care Sector Spotlight

  • Despite a reduction in overall transaction volume, the Beauty Care sector saw a handful of megadeals in 2023.
  • This underscores the robust financial positions of strategic acquirers, showcasing not only their healthy balance sheets but also their readiness to to pay premium valuations for high-quality brands and manufacturers. 

Outlook for 2024: Anticipating a Transaction Rebound

  • With the “wait and see” attitude that defined 2023 firmly in the past, we anticipate a moderate rebound in transaction volume for 2024, especially among financial sponsors, driven by the anticipation of lower interest rates.

For more information or questions, please contact our contributors:

Rich Anderson, Managing Director: randerson@hexagoncapitalalliance.com

Andrew Suen, Managing Director: asuen@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Brennan Anderson, Vice President: [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]