Aaron Newman from Cain Brothers released a short commentary about how private equity and venture capital are disrupting hospitals and health systems. According to Mr. Newman, there are four ways private equity and venture capital are fundamentally disrupting their business models: growth in Medicare Advantage, physician aggregation, delivery of care at lowest cost setting and disruption from non-traditional care providers. Going forward, hospitals and health systems must understand these disrupting forces and proactively assess strategic alternatives to fortify their market position.
In September, we saw Aurelius Healthcare Sdn Bhd, backed by private equity firm Navis Capital Partners, acquire Nilai Medical Centre, a 100-bed multi-disciplinary medical center located in Nilai, Malaysia. Originally established in 1999 as Nilai Cancer Institute, the medical center offers services catering to laparoscopic surgery, endoscopy, diagnosis, laboratory analysis, chemotherapy and radiotherapy, delivering enhanced care management for the patients and their respective families and caretakers.
Although there have been several private equity-backed deals in the hospital sector this year, the majority of private equity activity has been focused in the Physician Medical Group (PMG) and Home Health and Hospice (HH&H) markets, which directly compete with the hospital sector. In fact, 71% of the 398 PMG deals YTD have been private equity-backed, roughly equal to what we saw last year (72%). Additionally, 34% of the 136 HH&H deals YTD have been private equity-backed, down from the 49% of HH&H that deals were backed by private equity during the same 2020 period. The trends noted by Mr. Newman, driven by private equity and venture capital investment, will continue to provide significant challenges that legacy hospitals and health systems need to be aware of and aggressive against in their M&A strategy going forward. Check out Aaron Newman’s banker commentary here.
