14 Thoughts on the Healthcare Private Equity Environment 4-28-26

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Think revenue cycle, IT, business services, staffing, and more. Some of the big revenue cycle companies that are private equity funded include R1 RCM Ensemble Health Partners and Nibble Solutions Third continued growth and specialty practice management particularly where there are solid margins and ancillary opportunities Think orthopedics GI dermatology cardiology specialty dental, and behavioral health and urology. A lot of investment in companies that provide services to payers too. In the orthopedic area, think growth stories like Healthcare outcomes performance company, Hopco and Orthopedics, and many others. Fourth, there's a huge struggle in low margin specialties where PE adds debt, but margins are under real pressure. Pressure, think OB-GYN, primary care, some of the boom is also off the rose in the Medicare Advantage business. Some companies like Dewey Health Care, Dewey Health and Care have really bucked these trends for really successful private equity-backed multi-specialty practice. Fifth, P.E., private equity, has about 800 to 900 hospitals collectively, a couple big blowups where low margin business meets high debt. The majority of P.E.-driven hospitals perform nicely. The big growth companies that blew up often included hospitals that were in real trouble to start with. So Stewart Healthcare sure they made some serious mistakes but about 10 or 12 of the 30 hospitals they bought were basically under water when they bought them Lifepoint owned by Apollo is a really well firm Art Health which was PE owned and is now public was also a great PE owned operator Sixth, the OB3 cuts may be overstated. The rural behavior of $50 billion spend is driving a lot of investors to chase those funds. So OB3 cuts are serious. A lot of the cuts are actually a reduction in increases than actually cuts, but we'll see how it goes in the next decade. Seventh, private equity is often scapegoated. However, it reflects overall a 12% of health systems of doctors. 7% to 8% of health systems, 78% of doctors, 7% to 8%. An insurance company, one insurance company, employs more doctors than all of private equity combined. PE can relieve stress in an overwhelmed system. Eighth, in the venture capital area, a lot of investment in artificial intelligence firms. that is booming. Incredible efforts to back the possible winners in AI solutions. And recent Horwitz, General Catalyst, Coastal Ventures, and others really taking that race to heart. A race to be the solution of choice. We're watching two of the big ambient listening companies abridging ambience healthcare It like watching two great warriors compete in handy at combat to employ their ambient solutions Ninth long physician and other shortages may make physician practice management growth much harder Tenth still a great deal of growth in outpatient facilities ASCs emergency departments urgent care, and behavioral health. Also autism and other parts that are closely related to behavioral health. Eleventh, cash flow, deep product market fit, room for growth, acquisitions plus organic growth, rate management, good margins, and measured reimbursement risk make something quite investable. Thirteen, a lot of regulatory overhang in several states were starting to restrict PE investments in companies. Thirteen, we see some funds with deep conviction keep trying to grow deep depth in an area. Some are trying to vertically combine technology and services businesses or software and services business. They're not necessarily SaaS firms, but they're trying to take a tech company and a service firm and try and vertically integrate to get tougher and tougher and tighter and tighter in the market. We've seen Bain and some other investors have deep conviction in different areas and really ride this to success. They've got to have patience, they've got to have money, and they've got to have conviction. They can often drive it to success. Last thought I'll have for you today is one great acquisition, one that really works, that really is an arbitrage or great winner can make up for a lot of suboptimal bolt-on deals. Again, this is Scott Becker with the Becker Private Equity and Business Podcast. Thank you for listening to our podcast.