This is Scott Becker with a special combined episode of the Becker's Health Care podcast and the Becker Private Equity and Business podcast. I'm thrilled today to talk with two brilliant leaders from VMG Health. We're joined today by Lucas Ressio and Emily Rises. And Lucas is a managing director. Emily's a director, both brilliant professionals. And we're going to talk today about the state of health care mergers and acquisitions, trends, opportunities, and risks. Can I ask you to start Lucas and Emily to take a moment and introduce yourself and share a little bit about your work in sort of the health care and sort of the business and deal environment in health care? Absolutely. Thanks Scott for having us here today. Lucas Ressio, managing director within VMG Health's financial due diligence practice, which means that primarily I'm working on quality of earnings analyses, networking capital analyses, and any really accounting or financial due diligence that may occur prior to a transaction or partnership taking place here. So Emily, if you'd like to go next. Yeah, Scott, thanks again for having us both here today. My name is Emily Rises. I'm a director in VMG Health's valuation and transaction advisory service line. What that means, I primarily help clients, whether that's a health system, a management company, private equity portfolio company, establish the price for a contemplative transaction, working with buyers and sellers to help figure out what should this deal be worth. Thank you so much. And talk for a second, and I'll ask, why don't you take the lead in the first question? Why don't you take the lead in the second question? And each of you to comment on all the questions. Lucas, let me start with you here. Last year, there were about a thousand different closed healthcare mergers and acquisitions transactions. And that's across sort of the private equity space, as well as the health system space. In the year that seemed like not a busy year for deals, there were still a ton of deals getting done. What are some of the key observations that your team has with respect to all that activity? And what might it mean for healthcare in the future? Right, absolutely. So first thing is that the activity does continue, and this is in part out of two veins, right? One is growth and one is survival. And so when we think about those two things, there are a lot of, and Emily can talk about this in more detail, but there is this idea of, okay, if we're a hospital or health system and we want to continue care in a region, we want to keep these facilities open. And so some folks need to partner with the larger and broader organization to make that financially feasible. The second would be that if we're in growth mode, and we're talking about perhaps a different type of provider and business enterprise out there, they want to grow their revenues, their EBITDAs, expand their geographic footprint, etc. And so the deals continue to get done at the tuck-in size. And so one of the things that we're tracking closely within our realm is that the top quality assets seem to have poked their heads up again, let's say, and are willing to explore these types of partnerships because we have a little bit, not perfect, right, but a little bit more certainty around the economic environment, and some of those headwinds that existed and uncertainties that played 2025 if we were to kind of pull the audience, those things seem to have reached a level where we're now comfortable with how uncomfortable we are. So those top quality assets have started to come out again, especially some of these independently owned groups, because we're finding valuation and this is where Emily will be able to contribute a tremendous amount of knowledge. The valuation gap to buyers and sellers is converging. They're finding common ground in terms of what the multiples should look like, what types of earnings they should be getting credit for, the types of activities which are driving value. And so when we see those things taking place, it's all very encouraging and in truth, when Emily and I were reviewing together here to hear a thousand transactions, to your point, it didn't quite match how we thought we felt about the market previously. But Emily, I'd kind of look to you for your thoughts too here. Yeah, just stepping back at a macro level, I agree everything with what you said, Lucas. If we flashback 15 months ago was when 2025 started, we started the year with a lot of uncertainty and that led to softness at the beginning of the year, which is why at a full year level, we look soft to flat prior years. But that deal momentum and deal value really picked up, sprinted towards the end of the year. And we saw a lot of momentum closing out the year. Some of the themes, if I had to characterize, deal motivation, deal activity within 2025, echoing everything Lucas said, there is a lot of headwind, a lot of industry headwinds in the acute care space. There's significant interest in the amatory and outpatient services space. And then from a private equity deal volume perspective, there are a lot of talking opportunities that are driving deal value. And then a lot of emerging platforms that are looking for exit opportunities. And Emily, I'll ask you a follow up question. Valuations, what are you seeing in terms of the closing of the gap of valuations? And I'll ask you this question and I'll then ask Lucas to give us thoughts on this question too. I'm going to ask you about valuations. I'm going to ask you about verticals. And then I'm going to ask you about the Aggies. And we'll go in that order, but we'll start with both of you on valuations. What are you seeing on valuations? And I'm going to come back to the Texas A&M question a little bit later. But talk to us a little bit, Emily, about valuations. And where are you seeing that? I mean, Lucas mentioned some of that delta between, if you went back five years ago, sellers thought they could sell a huge multiple, those multiples compressed over the years, buyers got more careful, even though they have so much money to put to work, if they're in the private equity space, health systems space, sometimes a little bit different. But do you have this huge gap between what sellers thought they should get or might have felt like they needed to get, particularly if they're private equity financed versus what buyers were willing to buy to pay? What are you seeing in terms of some of that closing of that gap? Yeah, that's a great question, Scott. If we flash back to where we were six years ago now was COVID, there was a lot of uncertainty around profitability and financial performance. And then there was a lot of pausing of deal volume. In 2021, there was this huge surge of deal volume, deal value. Organizations wanted to recover investment strategies that put on pause throughout COVID. So there was this huge spike in deal volume. And then it was really a free, let's pay whatever we need to pay to get deals closed, to get deals done, to start getting capital to work again. And we saw a surge in valuation multiples, really across verticals, across the industry. It was a really crazy time. Since 2021, things have really softened. People are, investors are, they might have gotten burned with some of the hefty price tags and some of those deals. And they're really trying to absorb what we did buy in 2021. And really, since then, we've seen a lot of just consistency and stability in deal volume and value happening. Where we are today, one of the things that's helping align buyer and seller expectations, we're seeing a lot more earn out structures in some of these private equity deals where maybe there is a valuation gap still because I still want to be priced to tell my buddy was priced in 2021. And we're seeing earn out structures, the adoption of an earn out structure in a lot of deals becoming more and more prevalent. And what this can do, it can protect the buyer because if part of my purchase price is dependent on post transaction financial performance, then I'm going to be realizing the return that I'm paying for. And then it helps the seller get a little bit more comfort that they're getting their full value. Lucas would love to hear your perspective on that question too. Absolutely. Emily nailed it, Scott. And what we've really seen from the financial due diligence side is there's that calming also, we talk about multiples, how have those changed? But the other very equally important side of the equation is multiple of what? And there was this disparate belief in terms of what should be credit or not credit, whether you were the buyer or the seller. And what we found is this very nice equilibrium of terms of reasonable earnings and reasonable growth and how do we find common ground in terms of not putting ourselves in a position, like Emily mentioned, paying a high price on a high dollar value on a high multiple and then being in an operational purgatory where now we have to manage our way through that and grow our way out of perhaps a rate induced issue and find a way for us all to be successful. At the end of the day, these deals are about partnerships and finding ways for everyone to find success and meaning in the way that these things kind of produce value at the end of the day beyond just economic value. Right. And so those things, they've helped find alignment in terms of what we're seeing today. And I think that that kind of hygiene that's out there is another reason why those top quality assets are saying, okay, now this is getting interesting. Right. Now we're in a place that makes business sense to us. And it's important to remember these sellers, whether they're financially sponsored or they're independent, they are really good operators of their business as well. So just all interesting things as we see these groups come together. And I'm going to ask you a question, Lucas. And here's the question is, I've had a chance to work with VMG Health for literally 20 plus years, just a magnificent firm with great people and great talents and sort of the type of firm, you get what you expect coupled with fantastic sort of wide way would say is customer service and the ability to work really closely with clients in a really intelligent way. Now I'm going to tie this together. One of the things over the years, the Wall Street Journal always has studies on the best schools and colleges to recruit from. And one of the things that's always noteworthy is a couple of the schools that always rank really high are Notre Dame and Texas A&M. And quite frankly, another big 10 school that I went to University of Illinois. So I noticed it because University of Illinois does well in that too. And so places that create hardworking, smart professionals that sort of stay on career, stay on task and so was Notre Dame, Texas A&M, U of I and many other schools. But those are particularly often noted by the Wall Street Journal as schools to recruit from, particularly Texas A&M. Is it a coincidence that the two of you have these great professional reputations in both from Texas A&M or is it part of the culture of Texas A&M and VMG that coincides? Number one, we appreciate the partnership over the years, Scott, and thrilled to hear and thankful to hear you say those things. And it is not at all a coincidence. We recruit from schools that instill in their students the same things that VMG Health believes in very truly and dearly. So as we focus on Texas A&M, which both Emily and I are former students of, we, I had to pull up here just so I can speak to it directly. But six core values of Texas A&M, each one labeled above the Memorial Student Center, respect, excellence, leadership, loyalty, integrity, and most importantly, selfless service. When we think about what VMG Health does and why it's so important to us to find like-minded individuals, is that selfless service side, right? At the end of the day, this is a customer service, a client facing business where we're helping individuals find the right answer, right? Our biggest goal as an organization is to be a trusted advisor. It's not to lead the lead in sales or to do any of those other things, but just to really provide sound, meaningful advice to organizations carrying out meaningful missions. And so not at all a coincidence Scott, to your question, it's 100% an alignment of how we think about delivering true value to our clients. And that starts with our people, of course, and our people from top to bottom are the most important resource that our team has. And we've put a great deal of care into aligning ourselves with schools such as those. So it's funny you mentioned Notre Dame as well. We have a large number of Notre Dame alumni on the team as well. It's just critically important to us. And we've seen it over the years. I've literally visited with the founders and leaders and now the new CEO, West Champion, but Greg Koonsman and Jen Johnson. And for literally 20 plus years or more, it's really a remarkable organization in terms of just this mix of sort of greatness coupled with a pleasure of people to work with that our client service oriented. And so it's sincere in reality. Let me ask you this question, Lucas, and I'll start here and ask Emily to then tie together on this as well. Looking ahead, the M&A environment, where do you see it evolving? And where are some of the biggest opportunities and risks as we sort of moved through 2026 and 2027? All right. So there's been some very meaningful activity that's taken place in the end of 2025. And even here in 2026, that's providing a lot of opportunistic optimism, right? And it's pretty balanced. It's measured. It's not just fluff because we're at the end of Q1 here, right? It's meaningful in the way that it's presented. And that's some of these larger deals, right? As we think about mergers and acquisitions and what that means, there's the tuck in strategy of smaller groups joining larger groups and then larger groups joining ever larger groups or finding ways to make the divestitures out. And there's a number of very pertinent examples that exist at the end of 2025 and into 2026 that are driving a tremendous amount of the tailwinds that do exist. We mentioned headwinds earlier, but the tailwinds are there also. And so what we're seeing in terms of the evolving is very much as Emily mentioned. It's the meeting of the minds around the multiples and top quality assets and what that definition means to whom and when. There's this meeting of the minds that just continues to occur here. But then also we need to be thoughtful about, okay, how long and what is the balance of opportunity that exists for these groups to mature along their cycle and to continue to find the right partnerships that enable them to increase patient outcomes, to increase the access to patient care, and again, carry out these very critical missions that they're all driven to achieve. And so that's a little bit there. Emily, I'd love your opinion on this and maybe we can throw it back and forth here for a little bit, but would love to hear your thoughts as well. Yeah, so thinking about the biggest opportunities in the coming years for M&A environment, really on the private equity side, Lucas, you mentioned it, but I want to expand a little bit on the, when you said the maturity of the cycle. Historically, we've seen portfolio companies, private equity firms trying to hold these portfolio companies around called five years, three to five years, an average hold period. We're seeing a significant percentage of these private equity assets that are approaching seven years or longer hold periods. And why that's important is these investors, they're really trying to look for exit opportunities so they can start to realize the returns for their investors. So looking at this inventory of assets that could be coming to market and there could be an appetite to sell these maturing portfolio companies. The question becomes where is the exit opportunity and how will that drive deal volume in the coming year or years? The consensus we're seeing is that it is a more favorable exit environment. We would expect the opportunity to be there, but where are we going to exit to? One option, the exit to another platform, we saw that some looking at the Towerbrook Solis transaction this last year, another exit opportunity could be looking at an IPO. We saw Lumexa IPO back in December. So that's one avenue, but a really common and evolving strategy that we're seeing is an exit to a strategic buyer. So an organization that's looking to have the portfolio company really fit their long-term strategic goals. We saw this with a big mega deal this year was the AMSURGE Ascension Deal. Ascension was really looking to expand their outpatient strategy given the headwinds that we're seeing in the inpatient environment and the overall industry shift to outpatient. So that investment in AMSURGE really fit their expansion to outpatient strategy. Other exits to strategic buyers we've seen is the GI Alliance Cardinal looking towards that vertical integration opportunity and really getting some opportunities around drug spend and scale there. Lucas, anything else to add? Who are we going to exit to in 2026 activity? The only thing that we'd also add is that we're talking about, okay, how do we sell the whole enchilada? There's also this opportunity for some of the parts to be the better way to think about this. Groups have added in, they found what they're good at, where their core competencies are, and there may be opportunities to continue to divest some of these areas so that we continue to find ways for businesses to perform well in terms of economic performance, but also to do good in the communities in which they're at and put these assets and these very talented individuals top to bottom through these healthcare organizations in a position to give the best care that they can while also having the support from the financial economic regulatory compliance side that they're deserving of. And so there's a lot of unique combinations to Emily's point that are viable and we're seeing people pursue today and the interest is just really, it's really there in terms of how do we find the best path forward on these things? No, I think that's right on and I think fantastic thoughts, but you really do have the situation where so many private equity funds and investors are holding assets companies they invested in, practices they invested in, far longer than they anticipated doing so. Some of that's because some of those are performing very, very well and there's not been the right exit pricing. Some of that's because they're performing not that well and they still got to figure out what to do with those assets and whether they could still grow them and so forth. And I think Emily's point and your point and some of that going through IPO for the bigger, bigger platforms, some of that going to strategic which we weren't seeing a few years ago and some of it going to other platforms. I think that's all correct. And Lucas, any of the things you're watching currently in the private equity or healthcare environment that you wanted to comment on and then Emily, I'll ask you the same question. Right, so what we're continuing to hear is this idea and I don't know where it originated Scott, but this idea that the US healthcare system is not healthcare, it's sick care, right? We wait for there to be a problem and then we treat the problem. Well, the thesis and things that I'm seeing a lot of conversation in right now is, well, how do we kind of flip that script? How do we start putting the population in a better position to avoid some of these outcomes, right? And you look at the rates of cancer and young people of the average age keeps dropping lower and lower and lower. Why is that right? And so you think about why are we developing these issues? And there's a lot of conversation happening now in three areas that all kind of coalesce together in this idea of wellness, right? There's the functional health. How do we put ourselves in a position to maintain our health and fitness instead of repair the accidents that happen along the way? How do we think about concierge medicine and just making it available to individuals on a cash pay basis because the wait times to get a new primary care provider can be tremendous. Having just moved to a different part of Dallas, I can attest to what that looks like when you're trying to find a new primary care provider. And then third is this idea of food is medicine, right? How do we put ourselves in positions to somewhat contain costs based on improving our habits on the front end first, right? And practicing this idea of an ounce of prevention is worth a pound of care, right? How do we put that into place? And what is the economic model look around that? There's a lot of interest on, you know, if you think about what care looks like for a person throughout their lifetime, how do we move further out in front of the disease and the ailments to get into prevention? So there's a lot of interesting conversation, a lot of interesting businesses out there today trying to solve for that problem. But that's certainly the one thing that I would ask that I would mention here for today's listeners. But Emily? I would echo all those points, Lucas. I think there's going to continue to be a focus on outpatient services, thinking about the elimination of the inpatient only list, the site neutrality, regulations from a broader regulatory environment, you know, thinking about looming risks on the horizon. We've got HR1 and how that could impact Medicaid and the injured population in the future. And we've got continued scrutiny around some private equity investment in healthcare on a state by state basis. So I think there's definitely opportunities in all the areas Lucas mentioned and a lot of outpatient services. And then there's also some risks on the regulatory side and the balance between those two will help shape what deal volume and value looks like in the coming years. Lucas and Emily, I want to tell you what a pleasure it is to visit with you. Thank you so much for joining us today on this combined version of the Becker Private Equity and Business podcast and the Becker Healthcare podcast. Each of you are fantastic to visit with. It's been great to watch your career growth, both of you, and just fantastic to visit today. True leaders in sort of the healthcare M&A space and the valuation and quality earnings world. Thank you so much for taking time with us today. Thank you, Scott. Yes, thanks so much, Scott.
