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September 21, 2023

How health care companies are trying to take a page from Wayne Gretzky

How health care companies are trying to take a page from Wayne Gretzky

by Nashville Business Journal | Eleanor Kennedy

Any health care expert will tell you: It’s a busy time in the world of health care finance, with an extremely active mergers and acquisitions market and high valuations for young companies. And according to the four experts who spoke at a Nashville Health Care Council panel Wednesday, the industry shows no immediate signs of slowing down.

Thanks to low interest rates and increased post-recession confidence in board rooms, the M&A market has “been quite robust” in 2015, said Philip Pucciarelli, managing director and head of health care services for BMO Capital Markets.

Wednesday’s panel touched on several consistent themes in health care today: unusual and creatively structured deals, focus on lower cost with higher quality, and the transition from fee-for-service medicine to pay structures based on outcomes.

That last issue is what makes it unclear how all of today’s deals will look five or 10 years down the road. Eb LeMaster, managing director of Ponder & Co., said many of his financial advisory firm’s clients – primarily nonprofit hospital companies – are living “with a foot in each boat.” That means they’re both trying to function in today’s fee-for-service landscape and prepare themselves for new payments models to come.

“Everybody’s trying to adjust the game,” LeMaster said, a task made harder by the fact that it’s not exactly clear what that new game will look like.

Pucciarelli agreed, channelling Wayne Gretzky with his comment that in today’s environment, most health care players are trying to “play where the puck will be.”

Panelists also offered a few tips for the entrepreneurs trying to predict – and solve – the new game’s challenges. A few big ones:

  • Give yourself time to find the right partners and build trust with them. Both the venture capital and private equity experts on the panel talked about the long “gestation period” for deals: at least a year and a half to two years for Consonance Capital Partners, and sometimes two to three years for Harbert Venture Partners. Even if that gestation (or “dating”) period yields a “no,” Harbert’s Robert Crutchfield says his firm still wants to provide “value in the wake of no” and build toward a possible yes down the road.
  • Don’t be afraid to admit your mistakes. Both an investor and the companies they’re working with should have a clear strategy for how to grow, but need to not be afraid to admit that strategy was wrong. “With these younger businesses, you have to bob and weave,” said Benjamin Edmonds, managing partner and co-founder of Consonance. “You’ve got to be able to change direction quickly.”
  • Investors are great, but you don’t need them right away. In a city like Nashville, which Crutchfield called “the land of Oz” for entrepreneurs, there’s lots of deep-pocketed experts who can help a new business along before it reaches the institutional investment stage. Entrepreneurs should bootstrap for as long as they can, Crutchfield said, and leverage those experienced angels to get their business to a point where it can handle the fast-scaling demands of a sizable investment.
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