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April 30, 2014

Activist investors take aim at health care sector

Activist investors take aim at health care sector
by Shelley DuBois | Apr 30, 2014

Shelley DuBois | The Tennessean

A wave of consolidation has continued through the health care industry in early 2014. What else is on the horizon for the sector?

More activist investor activity, says James Forbes, vice chairman of UBS Group Americas.

“I think there’s a wave of shareholder activism coming that’s going to be huge in terms of pushing companies in how they think about capital,” Forbes said, speaking at an event Wednesday sponsored by the Nashville Health Care Council.

Forbes cited New York firm Glenview Capital Management’s involvement with Florida-based chain HMA as an example of the type of partnership that will happen more in the future. Among other changes, Glenview insisted that HMA replace its entire board while it was in the middle of being bought by Franklin-based Community Health Systems.

Forbes also nodded to the recent partnership between Valeant Pharmaceuticals and activist investor Bill Ackman, who are teaming up to take over pharmaceutical company Allergan, which makes Botox. This type of partnership with an activist investor will happen again, Forbes said.

The health care industry will continue to consolidate, predicted several experts on the panel, who also agreed that there is now a favorable financial environment to support smart investments, mergers and acquisitions.

“I think it’s a really exciting time to be an entrepreneur in health care,” said Chris Gordon, a managing director at Bain Capital. “There’s a lot of technology change and there’s a lot of business model change. Those both create a lot of interesting opportunities.”

That being said, Gordon added, “You’ve got to figure out how you’re going to get paid.”

The health care system is still grappling with how the government, commercial companies – or maybe one day, the consumer – pay for services, he said, adding that the most successful companies will understand how to survive in a fee-for-service system, while positioning themselves for an outcomes-based world.

“I think it’s all about preparing some of that plumbing but actually being pretty cautious around how you implement it.”​

Reach Shelley DuBois at 615-259-8241 and on Twitter at @shelleydubois.

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