The COVID-19 pandemic has had a deep and wide-ranging impact throughout all areas and sub-segments of healthcare, but perhaps none more so than in multi-site healthcare and physician practice management (PPM). As the coronavirus took hold throughout the country - particularly in the initial phase of late March, April and May – patients sheltered at home and a myriad of outpatient healthcare providers, from dentists to ophthalmologists to dermatologists, saw volumes plummet. The PPM industry has been on a harrowing ride during 2020, but stability (and deal activity) is returning as we settle into a “new normal.”
In our upcoming Market Insights LIVE
session, TripleTree professionals and healthcare deal makers from H.I.G. Capital
, Twin Brook Capital Partners
and McDermott Will & Emery
will share in-depth perspectives on multi-site healthcare and considerations for PPM, from their varying vantage points as investors, lenders, and M&A attorneys. In advance of this timely discussion, here’s a preview of some of the key dynamics at play.
The Impact of COVID-19 on Multi-Site Healthcare
As the pandemic moved across the country in the spring, local governments responded with varying levels of restrictions, admonishing people to remain at home except for essential needs. Healthcare service providers were roughly assembled into essential and non-essential, with more elective and non-emergency services seeing the greatest impact. The immediate reaction was one of triage and a focus on safety – for patients and employees, as well as the enterprise. Patient and employee safety centered around personal protective equipment (masks, face shields, gowns, gloves, etc.); enterprise safety focused on preservation of cash flow. After this initial phase, PPM owners and operators turned to measures of stabilization, addressing staffing and furloughs and assessing various government assistance programs.
Notable government assistance programs during COVID-19
CARES Act (Coronavirus Aid, Relief and Economic Security Act)
- $2.2 trillion aid bill that provided checks to many Americans and forgivable loans to small businesses. Significantly expanded the Medicare Accelerated and Advance Payment Program to include a broader set of healthcare providers
Paycheck Protection Program (PPP)
- $669 billion business loan program established by the CARES Act to help businesses continue paying their workers. PPP loans were equal to 2.5 times an applicant’s monthly payroll and may be partially or fully forgiven if the business keeps its employee counts and employee wages stable
Health Care Enhancement Act
– increased PPP funding by $484 billion and provided more funding for hospitals and testing for COVID-19
The disruption was widespread, but also created opportunity. As multi-site providers developed new protocols for safely re-opening, the country moved beyond the initial phase of the virus and volumes began to return. With greater stability, attention moved to a much closer examination of business priorities centered around efficiency, including efforts to streamline staffing and better utilize technology.
Topics to listen for in the Market Insights LIVE discussion:
M&A Activity Across Multi-Site Healthcare
- How did multi-site providers in your portfolio prioritize the various challenges of operating in the midst of COVID-19?
- What were some of the key financing tools utilized to help preserve cash flow and financial flexibility?
- Describe the steps taken to adjust staffing, manage furloughs and determine essential versus non-essential employees?
- How could things be different if the country enters a “second wave” in the fall and winter?
Deal activity has plummeted in multi-site and PPM throughout 2020, particularly in the second quarter during the depths of the pandemic. Companies that had contemplated coming to market in the spring (or were already in process) more often than not moved into a holding pattern, to both focus internally and allow the marketplace to stabilize. But while platform activity paused, opportunistic “bolt-on” activity filled the void. Smaller groups in ophthalmology, dermatology, women’s health, radiology and dental care, among other specialties, inked transactions with consolidators - larger enterprises better suited to withstand the virus-induced shock to patient volumes.
As investors have now moved from securing their portfolios to searching for new opportunities, being “pandemic-tested” has taken on new significance. New platform activity from private equity has just recently begun to re-emerge with a trio of announced transactions in October – VSS Capital Partners’ investment in Podiatry Growth Partners, Leonard Green & Partners’ investment in Eyemart Express and Ridgemont Equity Partners’ acquisition of Anne Arundel Dermatology.
Our panelists will address these and other key questions regarding current trends and the M&A environment in PPM:
Deal-Making in a COVID-19 Environment – Lessons Learned and New Considerations
- How are investing themes today different from pre-COVID? Are selected end markets more or less attractive today?
- How has the pandemic disruption created opportunities for value creation?
- Is there a premium for businesses with greater COVID resiliency?
- How has the pandemic altered the roll-up strategy playbook in PPM (if at all)?
As transactions have pushed forward over the last several months, flexibility and creativity have been key tools in the deal maker’s tool belt. Debt financing support has been a critical consideration, as buyers have weighed more conservative capital structures and, in some cases, full equity backstops to get deals over the finish line. Reported cash flow has taken on heightened significance with lower reliance (and greater scrutiny) on pro forma adjustments. However for businesses that have shown a strong rebound and a return to (or surpassing) pre-COVID volume, the inevitable COVID Adjustment is proving more reasonable to secure than one may have anticipated.
Other key deal structure topics for our panel:
- How has the pandemic influenced the bid-ask spread around valuations?
- What is the new norm for physician rollover or other tools to help secure physician support into the future and have them keep “skin in the game”?
- What is the prevalence of earnouts, deferred consideration, equity clawbacks or seller notes?
- How are buyers viewing PPP loans in a potential sale and what are some recommendations to sellers in terms of treatment?
We are excited to discuss and share perspectives on these and other themes changing healthcare delivery during our next Market Insights LIVE
thought leadership session – we hope you can join us
! Until then, let us know what you think.