Tag Archives: Health Business Group

Due diligence in middle market healthcare M&A. The boutique consulting firm advantage

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You’re a middle market private equity firm that’s just signed an LOI with a profitable and growing healthcare company. What started as a proprietary deal turned into a competitive process and you had to stretch toward the top end of your valuation range to win. Now you have a few weeks to complete the due diligence process and close the deal. A boutique consulting firm specializing in M&A for healthcare companies may be your best bet to assist.

What help do you need?

When middle market PE firms hire consultants for commercial due diligence of healthcare companies they usually have a few objectives:

  • To generate insights on topics that are critical to the investment thesis. There are often macro questions, such as the fate of healthcare reform after an election or the speed of adoption of a new technology. Then there are questions about the competitive landscape and specific competitors, and about market demand and the needs and satisfaction levels of key customers. Sometimes the potential buyer also needs an assessment of the management team and company processes. A PE firm can do some of this work itself, but often finds it useful to leverage additional resources and skill sets, such as the ability to extract valuable information from players throughout the industry on an unnamed basis.
  • To gain access to an objective third party that can play the role of a constructive skeptic and thought partner, making sure that investors don’t let their desire to close the deal cloud their judgment. The best consultants have the instinct, gravitas and wisdom to challenge consensus thinking and are willing to point out potential pitfalls in a deal and to counsel against proceeding when needed, even if the potential buyer doesn’t seem to appreciate it at the time.
  • To prepare for a fast start after closing by generating and validating compelling strategic initiatives and tactics.
  • To get as much high quality support as possible in a tight timeframe while staying within a reasonable budget.

What firm to hire?

Premier strategy consulting firms such as McKinsey, Boston Consulting Group, and Bain have strong due diligence practices serving PE firms. There are solid reasons for their success. These firms can:

  • Mobilize large teams of highly intelligent consultants around the world to gather and analyze data. They hire the best and brightest from business schools and undergraduate programs.
  • Leverage their knowledge base and industry networks built from hundreds or even thousands of relevant client assignments. Their proposals often reflect the perspectives and data they have assembled over the years.
  • Produce high-grade graphical presentations, with professional staff dedicated to consistent, visually pleasing outputs.
  • Offer their brand name as a seal of approval, which is reassuring to investment committees.

But boutique firms, typically consisting of 3 to 20 professionals, represent a superior due diligence option for middle market private equity firms. Why?

  • Consultants at boutique firms are often former senior professionals from the big, premier firms. The consultants performing the data gathering and analysis are frequently more experienced than the partners from the big firms, who are mainly selling and managing client relationships while fresh graduates staff the cases. A boutique firm’s consultants don’t need time to get up to speed, which is crucial when the project is only a few weeks long.
  • Boutique firm consultants are generally better than their big firm peers at thinking like investors and board members. Many gain this perspective by serving as board members of PE or VC-backed companies and as LPs in PE and VC funds. This profile makes it more likely that the consultant will approach the work with a practical, focused mindset, crisply addressing the questions that really matter. This differs from the classic strategy consulting project that employs elegant but often theoretical approaches. In select cases a consulting team member from a boutique firm is appointed to the board as an independent director post-closing, something that is generally not possible with a big firm.
  • Certain boutique consultants are entrepreneurial and commercially astute. When appropriate, they highlight opportunities for post-closing business development and partnering to help the new owners hit the ground running. Compared with the big firms, there are fewer constraints on introducing clients to one another and aligning with the PE firm for commercial success.
  • Professional fees for the engagement are usually a fraction of what the big firms charge. There are multiple reasons for this. Boutique teams are smaller and flatter because there are no trainees. Consulting veterans don’t need mid-level managers to watch over them. Everyone on the team pulls their weight; no one is there just to boost the billings. There are fewer fixed overheads like HR, administrative staff and downtown offices to cover, and boutiques are not charging a premium for their brand name. All this means that boutique firms can pay staff as well as the premier firms while still offering compelling value to clients.

I co-founded the company that became Health Business Group back in 2001. At that time most of our clients were former colleagues from my days at Boston Consulting Group who had moved into PE firms or senior management roles at companies. After being on the inside they understood our value proposition. Over the next few years we attracted new business from referrals and networking. Recently, we have been pleased to receive a number of qualified inbound inquiries from our website contact page, which represents a change in how clients find consultants. Middle market PE shops are searching the web specifically for boutique healthcare consulting firms to perform due diligence. After interviewing us and checking our references, they often bring us on board and are pleased with the working relationship and results.

By healthcare business consultant David E. Williams, president of Health Business Group.

Due diligence in middle market healthcare investing

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Due diligence

Private equity firms investing in middle market healthcare deals face serious challenges in commercial due diligence. There are many companies that appear attractive, with $5M+ EBITDA, increasing revenues and enticing stories of how industry dynamics, customer relationships, technology differentiation and management excellence will take them to the next level. In the $3 trillion US healthcare industry, there are numerous billion dollar niches offering strong returns to companies that ride the wave of transformation.

Generalist investors and even healthcare specialists need support when performing due diligence in the middle market. The companies are large enough that their businesses are often complex, but small enough that there is little public information about them. Often the management team and prior investors may not have a good sense of customer demand and competitors. In addition, investors face information asymmetry, making it difficult to discern whether the management team is as confident as they seem or whether they have sensed a peak and are trying to bail out at the top.

The Affordable Care Act has set off a tremendous era of change in the industry, and diligence needs to reflect the latest understanding of how the ecosystem is changing. For example, the shift from fee-for-service to value based payments upends many business models but enables new ones. Provider consolidation can dramatically change buying dynamics as sales move to the enterprise level. The growth of public health insurance exchanges increases health plans’ appetites for cost-saving approaches.

Middle market investors have to be savvy about how they invest resources in diligence, so they often turn to boutique consulting firms that provide high value at a moderate price. In our consulting practice at Health Business Group, some of my favorite work is helping middle market private equity firms and strategic buyers test investment hypotheses and improve clarity about a company’s prospects through commercial due diligence. We interview the company’s customers and competitors, consult with industry analysts, and leverage our internal knowledge base and expert network.

Over the years we’ve worked with private equity firms and strategic acquirers, performing diligence on everything from wound care to medical benefits management to teleradiology to medical cost containment to pharma sales and marketing to healthcare information technology.  Many of these deals have been completed and have resulted in long-term success. But we are unafraid to speak up and advise when a deal does not make sense, even when that’s not what our client wants to hear. Our closest relationships are with clients that we’ve steered away from bad deals.

Want to learn more? Please contact us.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

 

Partners closes Lynn’s hospital. I’m quoted

Partners is following through on a plan to consolidate its North Shore operations into Salem Medical Center, a move that will result in the closure of Union Hospital in Lynn, 6 miles away. I’m quoted in the Boston Globe (Partners to close Union Hospital in Lynn).

Here’s what I had to say:

David E. Williams, president of Health Business Group in Boston, said Union’s closing is hardly surprising, since many community hospitals –particularly those that treat high numbers of low-income patients and rely on government reimbursements– are struggling financially.

He said Partners, the state’s largest health system, is closing the hospital more gently than other health care companies without as much money; keeping an emergency room open for three years is a big concession to community concerns.

“I do largely buy their logic,” Williams said about Partners. “On the one hand, nobody likes it when their local hospital closes. On the other hand, considering how high health care costs are, it can’t say the way it is.”

By healthcare business consultant David E. Williams, president of Health Business Group.

New England Baptist on the move: I’m quoted

New England Baptist hospital, renowned for its focus on orthopedics, is considering a move from its Mission Hill perch. The existing facility is old and probably more trouble than it’s worth to renovate. It’s rational to consider building a new facility rather than renovating the old one.

The Boston Globe (N.E. Baptist Hospital plans a move) covers the story, focusing on the implications for the Mission Hill neighborhood and the character of the Baptist.

I’m quoted:

“When you have an old facility and you’re trying to work in a modern era when people care about efficiency and collaboration, it can be very difficult to remodel your old quarters,” said David E. Williams, president of the Boston consulting firm Health Business Group. “It makes sense for them to at least contemplate moving.”

Meanwhile, don’t hold your breath. This could take a decade or more.

By healthcare business consultant David E. Williams, president of Health Business Group.

 

Home care webinar: Recording available for viewing

We had a great turnout on Wednesday for our webinar Home health: Opportunities for ACOs, health plans and investors. We’ve made a recording of the webinar available for free.

You can view it here.

 

Home health business opportunities — join our webinar on December 10

Join us on December 10 at 1 pm EST for a complimentary webinar entitled Home Health: Opportunities for ACOs, health plans and investors. You can register here.

Here’ the press release we issued:

Health Business Group to offer webinar on home health investment opportunities

Home health: Opportunities for ACOs, health plans and investors. December 10, 1-2 pm EST

 

David E. Williams, President, Health Business Group
David E. Williams, President, Health Business Group

PRLogDec. 3, 2014BOSTONHealth Business Group is presenting a complimentary webinar on investment opportunities in home health, featuring CareCentrix Chief Growth Officer Steve Wogen andHome Care Delivered Founder & Chairman Gordy Fox along with Health Business Group’s David E. Williams and Karen Donovan.

“Home health is emerging from its sleepy origins as a minor ancillary service to become a key enabler of successful population health strategies,” said Williams. “Leading Accountable Care Organizations (ACOs) and health plans are learning how to incorporate home health into a holistic post-acute care strategy to improve quality and contain costs.”

More complex care is moving to the home, agencies are consolidating, and new analytics and technology solutions are being deployed to support the increased demands. Public and private payers are moving toward risk-based financing models and sole source arrangements to align incentives. Consumer engagement is starting to play a meaningful role.

The shift to the home offers opportunities for savvy providers, payers, entrepreneurs and investors. The webinar, scheduled for December 10, 2014 from 1-2 pm EST features pragmatic insights from a leading home care benefits manager, home care supplies company, and health care business consultant.

Presenters will discuss

·  How top ACOs and health plans are leveraging the home in their post-acute strategies

·   Why the trend toward care at home will continue

·   The hidden opportunities in out-of-episode services and supplies

·   How the federal government is encouraging a shift to the home

·   The top 5 opportunities for strategic and financial investors in 2015

Complimentary registration is available here.

About Health Business Group

Health Business Group is a leading health care business consulting firm advising companies, non-profits and investors in health care services, health information technology, and pharmaceutical services. Our client service professionals average more than 15 years of health care strategy consulting, industry and start-up experience. We are passionate about helping our clients succeed.

About CareCentrix

CareCentrix is the leader in managing care to the home, with approximately 1,400 employees and a nationwide network of almost 8,000 credentialed home health provider locations. CareCentrix serves leading health plans across the U.S. with a range of products and services that leverage the home and community based settings. We help payors and providers lower costs and improve outcomes for health plans and consumers. Covering more than 23 million lives, we provide optimal access to quality home care by connecting providers with patients and helping them navigate the complex home care system.

About Home Care Delivered

HCD is a rapidly growing specialty medical distributor that partners with physicians, home health care providers and other healthcare practitioners by providing medical supplies to their patients, delivered directly to their homes anywhere across the U.S. HCD has contracts with hundreds of insurance companies including Medicare, state Medicaid plans and commercial payers throughout the US. HCD offers a wide array of name-brand products across multiple chronic care categories, including incontinence, diabetes, ostomy, urology, wound care and oral nutritional supplements. These products are instrumental in assisting people to return home from a hospital stay or to extend their ability to remain in the home setting. HCD has 5 offices in the US and distribution that enables next-day delivery for 96% of the US population.

Is Partners HealthCare charting a new course? I’m quoted

I’m quoted in today’s front page Boston Globe article (Partners HealthCare chief met a trail of resistance), which dissects the tenure of outgoing Partners CEO, Gary Gottlieb. It should be no surprise that the continued expansion of the biggest and strongest healthcare system in Massachusetts under Gottlieb has led to friction and controversy.

The reporter asked me about whether a new CEO would change the company’s strategy. Here’s what I said:

Partners executives have said bolstering their network of hospitals is critical to coordinating patient care and keeping costs in check through more efficient care. Gottlieb’s successor and Partners’ board will have to decide whether to stick with that approach.

“The broad expansion, it’s not obvious that they need to do that,” said David E. Williams, president of Health Business Group, a Boston consulting firm. “Partners doesn’t need to expand at all and it would still be the biggest and strongest in the state.”

I suggested that Partners could decide to go back to its roots as a world-renowned academic medical center with its Massachusetts General Hospital and Brigham and Women’s Hospital. There are other ways to coordinate care and control costs besides owning community hospitals and physician practices.

By healthcare business consultant David E. Williams of the Health Business Group