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]

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: 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: Life Science Consulting

life science consulting

healthcare transactions

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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]

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: 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

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

 

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