Recognize that the market is ripe for divestitures
Healthcare companies should consider selling noncore business units to private equity firms that have money to invest and may be more apt than a corporate buyer to purchase a single business unit. And as megadeals complete, newly consolidated entities should consider shedding noncore assets, with private equity as a potential buyer.
Partner with private equity to unlock opportunities for growth and scale
Companies across the industry should consider where they might partner with private equity firms when pursuing growth or expansion efforts, as the private equity sector may provide strategic advantages beyond key additional financing. “Viewing private equity as a banker is shortsighted,” said Dawn Von Rohr, senior vice president of strategy for Albany, N.Y.-based AMRI, a global contract research and manufacturing organization purchased by The Carlyle Group and GTCR LLC in 2017. “Private equity can drive deals forward quickly. Once the deal has closed, they can provide a strategic view, understanding industry trends through their portfolio of investments and advising on growth opportunities.”
Understand that private equity is accelerating change in the industry and eyeing disruptors
Private equity investment in healthcare isn’t going to single-handedly improve care quality, enhance the patient experience or reduce healthcare costs to consumers. But it likely is fueling the efforts already in place. Private equity firms bring capital and experience from other industries that can contribute to the healthcare industry’s efforts to rein in costs and achieve better outcomes. For example, in May 2014, Los Angeles-based private equity firm Varsity Healthcare Partners acquired Baltimore-based Katzen Eye Group to form EyeCare Services Partners Holdings LLC (ESP).10,11 ESP has since made multiple acquisitions and now provides practice management services to ophthalmologists and optometrists across 46 clinics in five states.12 On its website, ESP touts increased reimbursement and elimination of administrative burden as benefits of selling a practice to ESP.13
At the same time, private equity has its eyes on disruptors, monitoring their effects on investments and proposed deals. In rare cases, it invests in disruptors, as in The Carlyle Group’s investment in San Francisco-based 1Life Healthcare, the parent company of national, membership-based primary care practice One Medical. The investment was announced in August 2018.14