Healthcare Private Equity in 2023 and Beyond

Private equity investment in the healthcare industry has been on the rise in recent years, driven by the growing demand for quality healthcare services and the need for more efficient delivery of care. Private equity is also increasingly attracted to the healthcare industry because of its potential for high returns and the opportunities for consolidation and growth – even during times of possible economic downturns.

I recently sat down with long-time dental advisor Ellie Naderi of Dental Solutions by Ellie Naderi, and Lorient Capital’s Vice President of Operations, Clint Barton, to take a closer look at these trends as well as the steps that healthcare finance leaders can take as they seek out or are approached by private equity. You can watch the full discussion here, or read on for a brief recap of a few key takeaways from the conversation:

Opportunities in specialty care

Private equity firms are increasingly investing in specialty care areas, such as mental/behavioral health, physical therapy, dermatology, urgent care, veterinary, dental, orthopedics, and senior living. According to Ellie and Clint, these areas are attractive to private equity firms because they offer high margins and significant growth potential, particularly in those areas that can offer low-cost care settings, or care in the home, a trend that was made much more popular during the Covid-19 pandemic. What is also key is that these specialty areas offer scale and ease of operations – whether it’s similarities across operating models, common buying power or procurement, or shared staff across locations.

Know your numbers

Whether you are a healthcare organization actively involved with a private equity firm, or just researching the trend, both Ellie and Clint emphasized the need for healthcare finance leaders to know their numbers inside and out – everything from clinical compliance, clinician productivity and patient outcome/utilization data, to core financial and operational metrics, as well as the overall strengths and weaknesses of the business. Clint shared that if healthcare finance leaders can have a strong GL system and a finance team that can handle diligence requirements while keeping momentum in day-to-day operations, it will make for a much smoother process overall.

Find the right fit

Treat working with a private equity firm like hiring the right staff at your organization – it must be a good fit on both sides. Clint and Ellie both shared their thoughts on how to evaluate potential PE partners, advising that it’s important to understand their expertise in your area of the industry, research other successful company builds, and the capabilities they can provide to help support and/or overcome your organization’s weaknesses in areas like marketing, finance, revenue/sales, business development, etc. Ellie encouraged healthcare finance leaders to consider seeking out a trusted advisor to help navigate the world of private equity in your area of the market, one that can provide honest feedback on your strengths and weaknesses, assist in identifying firms, and help prepare your organization for due diligence with limited hiccups or surprises.

As healthcare private equity continues to see record-breaking investments, healthcare finance leaders – particularly those in the specialty areas mentioned above – may find themselves seeking out and/or entertaining discussions with private equity firms and must be well-prepared to position themselves for a successful event. Click here to watch the full discussion on healthcare and private equity with Ellie Naderi and Clint Barton.