Alter Domus Sensus Magazine Issue 8 - Flipbook - Page 25
IN THE POST-COVID ERA
The Covid-19 pandemic slammed the brakes on the global
economy. But healthcare investment remained vital amid the
crisis. Sun Capital Partners’ Daniel Florian, Managing Director,
and Stephen Cella, Principal, discuss the deal landscape for
healthcare in a market driven by innovation.
When the Covid crisis hit, many private equity firms shifted
their focus from buying and selling to preserving the value of
their portfolio companies. But one area where deal activity
remained strong is healthcare. Healthcare deal volumes in
2020 were higher than their record 2018 and 2019 levels,
despite a 14% decline in volume in PE globally.
The healthcare market did see a slowdown during the height
of the pandemic, as firms and portfolio companies assessed
their situations and shored up their businesses. But then deals
came in a rush. “There was a big push to transact and close
deals by December 30. We saw a huge flurry of activity,” says
Daniel Florian, Managing Director at Sun Capital Partners, which
focuses on numerous verticals, including the healthcare space.
Strong vintages grow from troubled soil and all indications
are that 2021 will be a robust year for healthcare investment.
There is a robust near-term outlook for any and all businesses
that directly or indirectly address the Covid environment,
which has been defined by government quarantines and the
preference for patients to receive telemedicine or at-home care.
COVID ACCELERATED EXISTING TRENDS
On many fronts, the pandemic hastened trends that were
already in motion. Long-term trends toward telemedicine,
in-home care, digital engagement and data analytics were in
progress at many healthcare organisations, driven primarily
by convenience and cost, but they were usually considered a
“nice to have” rather than a “need to have.”
bit to acquire attractive assets. But there are also those inbetweens, those high-quality businesses that will be fine longterm but are going to have short-term struggles.”
Sun Capital is now looking to invest in business models that
address growing patient populations, are capturing market
share from competitors and/or are pursuing substitution or
improvement for existing standards of care. Overall, the firm
is investing in services and technologies that improve the
“The businesses that proved to be Covid-resistant are arguably
worth more than they were a year ago”
Managing Director at Sun Capital Partners
HEALTHCARE INVESTMENT GENERATES RETURNS
Firms that are active in the healthcare space have the
opportunity to generate not only attractive returns for their
investors but also better results for the patients who are
customers of the businesses that private equity firms invest in.
“It’s patient empowerment,” Cella says. “We’re seeing more
healthcare providers treat patients like high-value consumers
in the way that, say, Apple has been doing for decades now.
With Sun Capital’s consumer-investing background, we’ve
hit the perfect time to be a crossover healthcare-consumer
investor because of the patient empowerment that is
happening in the marketplace.”
It’s the classic win-win scenario in PE and it is especially
available in the healthcare sector. Partners can see the positive
impact they’re making at the human level.
“Where we start to become a little more shy is with those
business models that aren’t doing those things, business
models with a legacy format that is known to be high-cost or
low-efficacy, either because there is an improved standard of
care, the specialty was not in the practice of measuring and
quantifying care outcomes, or their business models may not
be serving a high-growth end market,” says Cella.
As an example, Cella cites skilled nursing, which works well
for a subset of patients who need more intensive care but is
expensive and potentially a less-effective or equally effective
alternative to lower-cost care settings like the home. Another
example is urgent care. There may be a growing demand base
but the individual businesses themselves are not so clinically
differentiated. The product tends to be less recurring and
episodic in nature and based around location and convenience.
“So we’re a little bit more shy in the urgent care space,
despite the apparent growth in the sector, just because it’s
more difficult for us to partner with a management team to
create a truly differentiated experience relative to the other
alternatives that might be appealing,” Cella says.
The pandemic immediately compelled faster uptake of these
efforts throughout the healthcare industry, as they were
redefined as essential. Hospitals in heavily impacted places
were overwhelmed by Covid patients, which put severe
pressure on staff, space and supplies. At the same time,
providers and payers saw a spike in call centre activity and
their websites were filled with visitors in search of information.
All of this provoked a rapid digital push.
Covid also bifurcated the healthcare industry into the haves
and the have-nots. “The businesses that proved to be Covidresistant are arguably worth more than they were a year ago,”
Florian says. “And the financing markets have roared back,
so you have willing and able buyers like me chomping at the
24 SENSUS ISSUE 8