The Prognosis for Healthcare M&A Heading Into 2022

On this premiere episode of The Banker's Corner, McGuireWoods' Geoff Cockrell sits down with Justin Hand, Managing Director at Westcove Partners, to discuss the trends, solutions, and business issues affecting the healthcare private equity market.

2021 concluded with a flurry of activity for the healthcare market, setting the stage for this timely conversation. Many deals were squeezed in and closed at the 11th hour, with many more carried over into the new year.

With the past year ending on such a high note, what drives these trends? And what can we expect in 2022?

For one, there will be more healthcare M&A as a byproduct of the backlog of deals, capital gains, and the tailwinds of smaller practices losing competitive muscle and wanting to sell to larger ones.

This trend promises to continue, although there are concerns over increasing interest rates, larger funds and new players, a shift in multiples, and disruptive evolution in the healthcare sector.

Featured Experts

Name: Geoffrey Cockrell

What he does: Geoff is the Chair of McGuireWoods’ private equity group and serves on the firm's Board of Partners; he has extensive experience in mergers and acquisitions, especially in the healthcare space.

Organization: McGuireWoods

Connect: LinkedIn

Name: Justin Hand

What he does: As the Founder and Managing Director of Westcove Partners, Justin is involved in most active mandates, oversees financial sponsor coverage, maintains key third-party relationships, and leads the firm's Impact Investing initiative.

Organization: Westcove Partners

Connect: LinkedIn

Notes From the Banker’s Corner

Top takeaways from this episode

★ Healthcare businesses are not immune to the pandemic. According to Justin, entrepreneurs have a hard time withstanding the different variants of COVID, competing with private equity-backed portfolio companies, and dealing with employment challenges.

★ The more complex the competition, the more M&A deals. More acquisitions and consolidations will happen as the competitive landscape becomes increasingly brutal for small and less capitalized practices. More so because the high multiples is a great incentive, but beyond that, it is a more secure way to take the brand into the future. And with the potential for recapitalization, there’s more to consider.

★ Investors have a responsibility to drive disruptive evolution in the healthcare business. Early-stage businesses with a bolder idea of how they can influence healthcare deserve as much funding as those doing five-plus in EBITDA. Ultimately, Justin sees a trend where those five-plus EBITDA businesses will sooner or later have to exit or merge with the disrupters.

Episode Insights

[02:48] Capital gains are driving exits: Justin believes more healthcare exits will continue through 2022 as capital gains are expected to stay the same.

[04:42] More alignments: As small and less capitalized patient-facing healthcare businesses...