What’s Driving the Healthcare M&A Market Today?

Chris Moynihan (00:01):

You are listening to Solomon Partners Presents. I’m Chris Moynihan, a Director in the M&A group, and I’m here with Brad Hildebrand, a Managing Director in our healthcare group. Our listeners might recognize Brad, as he’s joined us on previous episodes of Solomon Partners Presents.

Brad Hildebrand (00:17):

That’s right, Chris. Previously, I’d interviewed a few CEOs in the MedSpa space. It’s wonderful to be back on the podcast.

Chris Moynihan (00:24):

It’s great to have you back and I know for our listeners they might remember you spend a lot of your time in healthcare, and healthcare for us has been a really interesting sector at Solomon. It’s become one of our biggest groups. It’s the largest M&A market in the United States. What gets you excited about healthcare? Why invest in it? Why are people spending time in it?

Brad Hildebrand (00:45):

It’s a great question, Chris. I think we’ve built a fantastic healthcare group with a ton of expertise in the space. It’s been wonderful to see the team come together and really covering the market nearly end to end today with some really high-caliber individuals that have great relationships and just a ton of insights. That’s been wonderful for me to interact with those folks, day in and day out. To your question on why healthcare, it can be boiled down pretty simplistically: It’s a very large market that grows at above-market rates. Healthcare today is about 20% of the GDP. That proportion continues to increase every year and healthcare very consistently has grown faster than other areas of the economy. The space is marked by a ton of great companies, which are delivering really innovative solutions and care to patients, and the demand tends to be relatively inelastic. So, I think all the reasons that folks have liked investing in healthcare historically remain true today, again — big market grows really fast, some really wonderful and innovative companies in the space to invest in.

Chris Moynihan (01:49):

Let’s talk about the current state of the healthcare market. So, in our past podcasts, the M&A Today Podcast, we’ve talked a little bit about deal activity and how it’s been a bit more muted at least compared to ’20, ’21, ’22. What are you seeing in the healthcare market? How has policy uncertainty or interest rates impacted the level of deal activity — and what have you seen in terms of bright spots?

Brad Hildebrand (02:12):

What you articulated has been consistent with what we’ve seen in the healthcare services landscape. You asked about variables like policy and interest rates, and while we’d all like to see interest rates come a little bit lower, especially platforms that are focused on growing via M&A, I think the bigger impact in our space has been on regulatory policy. Coming out of the new administration last year, there were challenging headwinds as it relates to the FTC, which we’ve seen those headwinds wane, but in their place, you’ve seen uncertainty around the new administration’s focus on cost containment. DOGE continues to be a factor on people’s minds, and people think about how is that going to impact reimbursement for programs like Medicare and Medicaid, which are large payers into the healthcare space. At the end of the day, these are very well-insulated areas of spend and I think time will help all investors come to that consensus view, but it’s really been a wait-and-see approach over the course of the last six months to see let’s get the new administration in and see how this all unfolds through legislative activity.

(03:18):

Another big topic on the regulatory front has been the ongoing discussions around tariffs. If you’d asked me a few months ago, the concern would’ve been higher. It feels like cooler heads have prevailed and we’ve taken an off-ramp from some of the real downside scenarios, but regardless of how that all shakes out, our view is that the healthcare services landscape is relatively well insulated from any sort of trade frictions that come about. At the end of the day, care is being delivered in person to a patient within the United States. There are obviously inputs that are coming from international trade, but relative to other sectors, that’s a much smaller piece of the business. For investors that are focused on tariffs and risk around tariffs, healthcare services is a really insulated place of the market to commit capital.

Chris Moynihan (04:07):

I think what’s interesting about your sector as well is you have legacy large platforms, whether they be in dental or behavioral, but you also have these new interesting, exciting sectors like you spoke about in prior podcasts with MedSpa, for example. Do you want to maybe double-click on some of those areas where you guys are focused on specifically?

Brad Hildebrand (04:28):

Yeah, happy to do it. You mentioned aesthetics at the onset. It’s an area we continue to spend a lot of time in, and we continue to see the development of some really great assets in that space. As you’ve heard sort of a recurring theme here, the end-market demand picture is wonderful. A lot of the trends that we saw, especially through COVID — and I know we’re all tired of talking about COVID — but a lot of the trends in an area like aesthetics are trends that aren’t one and done and that are going to be around for the long term. You’re seeing a lot more utilization of those services, and as a result, you’re seeing great volume growth for those types of platforms. But across the multi-site landscape, we’re seeing some really amazing companies doing amazing things in areas like oral health and orthopedics and cardiology, women’s health, and GI and urology too. There’s a lot of commonalities across these platforms and at the end of the day, what we’re seeing is that platforms that have been built the right way, that have alignment across the stakeholders, are getting interest from investors regardless of what the end-market is.

Chris Moynihan (05:34):

What do you think separates the platforms in market today? What is a best-in-class multi-site platform? What are those criteria that buyers sponsors or strategics are looking for?

Brad Hildebrand (05:45):

It can be made complicated, but it’s actually pretty simple. What investors are looking for at the end of the day is a platform that is delivering value to their patients and how they go about that typically delivering a lot of value to the physicians who then, in turn, treat the patients, and supporting those physicians with best-in-class technology, best-in-class information to allow real time decision-making and really aligning all of the stakeholders to make sure that everybody is focused on that central theme of we want to deliver the best possible care and the best experience to the patient, and we need to put all the pieces in place to be able to do that and do that consistently. And where you see that manifest, in terms of hard numbers, are things like the organic growth rate that the platform is delivering. Provider retention — do doctors want to come and stay? So, there are some hard barometers that you can look at to see how well that they’re doing on that front; but at the end of the day, again, keep it simple, deliver great quality to the patients in order to do that. Really support and deliver great quality to the doctors, arm them with all the tools in order to be successful, and you’ve got a great platform.

Chris Moynihan (06:58):

Oftentimes, the builders of those platforms are usually private equity and they’ve been a big driving force in this industry helping with consolidation, with growth, especially in some of the subsectors. Youve mentioned we’ve talked a lot in prior podcast episodes about how sponsor activity has been a bit limited. Maybe it’s the interest rate environment, maybe it’s just in the pressure on those sponsors to exit is continuing to grow. How do you think this is going to play out in your sector, especially as maybe the interest rate environment changes or we get by some of the issues with Medicaid as we look into the back half of the year.

Brad Hildebrand (07:36):

I think as we look at the sponsor landscape you’ve talked about on prior episodes, just the significant amount of dry powder that’s sitting on the sidelines for sponsors to deploy, and obviously they have a limited window to deploy that capital. So, that gives us confidence that you’re going to see sponsors coming in and making investments. You are right that there is mounting pressure on sponsors to return existing capital to LPs, which I think will continue to be a driver as well. So, I think sponsors have and will continue to make up a material portion of the services space and a lot of sponsors have had wonderful outcomes investing in the space, and I think we’ll continue to see that. I do think that sponsor activity will increase over the balance of this year and into next year, relative to what we saw in the first half of ’25 and then back into 2024.

(08:29):

I think the flipside of that coin that we’ve seen really be a change in the services space has been the entrances of some strategics that historically hadn’t played in the market and have come into the market in a big way. So, I’ll give you some examples. Historically, the strategics here outside of in-market in subsector strategics of a larger company acquiring a smaller company, you’ve had sort of more outside-the-box folks like health systems come in and acquire provider businesses; payers come in and vertically integrate with businesses across the healthcare services landscape. We’ve seen that historically, what we’ve seen that’s a bit new is a real emergence of folks like distributors coming into the marketplace to bid and acquire assets that they haven’t chased historically. So, folks like McKesson and Cardinal and Cencora have all come in a big way into the retail, healthcare and physician space to acquire assets in the vision sector, acquire assets in the urology sector and the oncology sector and the GI sector.

(09:36):

There’s a range of rationale for each deal and why it’s been attractive to these folks, but it’s been a real change in the marketplace because these folks have come in and have bid very, very competitively with sponsors in these processes and often outfit them candidly and prevailed, and have been the counterparty on several of the largest trades in the areas that I spend time in over the course of the last few years. And the rationale for them is really things like trying to further integrate and control the downstream supply of their products, in some cases, generate data which will allow them to innovate into value-based care constructs. And at the end of the day, they’re looking for rapid growth vectors and the beautiful part about the service — the healthcare services landscape in general — is that it’s really big and it grows really fast, and these types of players are seeing that, and as a result, they’ve become very active acquirers across the landscape.

Chris Moynihan (10:35):

Any final thoughts before we wrap up on what else we can expect in the remainder of the year?

Brad Hildebrand (10:41):

We touched on a few of the changes we could go on for hours and hours about everything that’s evolving in this landscape. I just want to leave the listeners with where we started, that all of the theses that were in place 10, 15, 20 years ago for people to invest in this space, remain today. And there’s a lot of wonderful assets that are out there doing a lot of unique things that at the end of the day is delivering a lot of value to the patients. And I think, we as bankers love to support those kind of companies. The platforms are delivering great care to the patient and continue to expand their services to wider patient population. We at Solomon continue to remain excited about the future and it’d be interesting to see how the rest of the year unfolds, but there’s a lot of wonderful companies out there and there’s a lot of capital sitting on the sidelines that want to support those companies.

Chris Moynihan (11:32):

Agree with that. If it’s not an exciting second half, ’25, it’ll definitely be an exciting ’26. Brad, thank you for joining. It’s always great to have you on and to hear your voice again on the Solomon Partners presents.

Brad Hildebrand (11:43):

Thanks, Chris. Really appreciate you hosting, and wonderful to be back on the podcast.

Chris Moynihan (11:48):

For our listeners, thank you for joining us today. Thank you for tuning in and you can visit us online at solomonpartners.com.