The Capital Corner McGuireWoods

Only 20% to 25% of patients that need behavioral health support actually receive care. That means the behavioral health sector offers opportunity and high ROI for investors focused on delivering better outcomes at lower costs. 
Terry Wang, Partner at Regal Healthcare Capital Partners, joins host Geoff Cockrell on this episode of The Capital Corner for a discussion on how investors should view opportunities in the behavioral health sector, growth strategies, and what 2023 may look like.
“The most important element here is who is delivering care, really making sure that you're delivering care in a compliant way, in a quality way,” advises Terry. “Even if it may cost more in the short term, it's going to pay off in the long term. There are countless examples of behavioral health companies that have gotten in trouble because they've cut corners.” 
Even with the potential for difficult valuations in the current economic climate, Terry predicts lots of opportunity within the behavioral health sector. Once considered “the ugly stepchild” of the healthcare industry, it is now a primary focus for government agencies, healthcare providers, and patients, who are beginning to understand how mental health concerns can impact physical health. 
The sector is only just starting to mature, says Terry. Investors that can prove they can deliver better results at a lower cost stand to benefit from the enormous opportunity. 
  
Featured GuestName: Terry Wang
What he does: Terry is a Partner at Regal Healthcare Capital Partners. Before that, he was the VP of Operations at CHE Senior Psychological Services, a leading, private-equity backed provider of mental health services to skilled nursing, assisted living, adult day care, and rehab centers. He received a B.S. in Finance and Management from the Wharton School of the University of Pennsylvania, and an MBA from Harvard Business School. 
Organization: Regal Healthcare Capital Partners
Connect: LinkedIn
Notes From the Capital CornerTop takeaways from this episode
★     Focus on delivering better outcomes at lower cost. According to Terry, there are opportunities to invest across the entire acuity spectrum of the behavioral health sector.
★     An underserved market leaves room for organic growth. With behavioral health needs being largely underserved, there’s an opportunity to hire and retain providers, contract with insurance companies, and find ways to market to new patients.  
★     Behavioral health assets can have different lifecycle opportunities. Platforms in the sector can progress through different stages as their size and scale changes. Early stage investors can get involved even when platforms are pre-revenue.
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Jason Porter of Baird is a leading healthcare provider investment banker with many specialties. But one area that he says is growing and occupying more attention from investors lately is fertility care and OB-GYN services.
Why? Both OB-GYNs and fertility providers present a range of opportunities for investors: they’re often seen more frequently by patients than general providers or other specialized providers, and advancing research and technology in the space continues to generate successful outcomes. The sector continues to push for more contracts and opportunities for value-based care. 
So what is it like to invest in this thriving yet complicated market right now, and how does Jason approach investment opportunities?
Tune in to this episode of The Capital Corner to find out. Host and Chair McGuireWoods' private equity group Geoff Cockrell sits down with Jason to discuss where the OB-GYN and fertility sectors differ, where opportunities in the sector are growing, and what providers and groups can do to be more successful as they shift to value-based care. 
Featured GuestName: Jason Porter
What he does: Jason is a Managing Director at Baird’s healthcare investment banking practice and a leading investment banker in the healthcare provider services space. At Baird, he focuses on physician and alternate site healthcare services. 
Organization: Baird
Connect: LinkedIn
Notes From the Capital CornerTop takeaways from this episode
★     Investor interest in OB-GYN and fertility services is growing. This is because patients see OB-GYN providers more frequently than other doctors, creating more opportunities to provide value-based care. The quality of both OB-GYN and fertility care is also growing as new technology and advancements in medicine become available.
★     Approach the market with a construct in place. When it comes to settling compensation between providers and sponsors, it’s imperative to educate your provider on different compensation models and options beforehand. Then when the bids start coming in, you can walk them through “what it can look like in the future and what that proverbial second bite of the apple can be from an economic perspective,” Jason says.
★     Data is key to success in a system turning to value-based care. In order to be successful in benefitting both the payer and provider, groups need to provide data showing outcomes across practices. “There's no other way around it as the entire healthcare ecosystem moves to value-based care,” Jason says.

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On this episode of The Capital Corner, McGuireWoods' Geoff Cockrell sits down with Dr. Bijan Salehizadeh, Managing Director at NaviMed Capital, to discuss what is happening in the pharma services space within healthcare private equity.
The pharmaceutical services industry has piqued the interest of private equity investors over the last five to ten years as more drugs move into development and high quality science continues to grow. An impressive 500 IPOs were filed from biotech companies last year alone. 
So what attracts private equity firms to invest in pharma services? And what can we expect in 2022? 
“The benefit of pharmacy services is you're not subject to government reimbursement. And Pharma is a good payer and a fast payer. You also have pretty good pricing power,” explains Bijan in relation to what attracts investors to pharmaceutical services. 
Despite a turbulent start to 2022, Bijan doesn’t see the interest in pharma services slowing down. In fact, he describes the industry as being “recession resistant” compared to many other areas of healthcare. 
 
Featured GuestName: Bijan Salehizadeh
What he does: Bijan has over 20 years of healthcare operating and investment experience. At NaviMed, he sits on the firm’s Investment Committee and is responsible for leading investments and overseeing portfolio companies with a particular focus on healthcare providers and pharmaceutical services. Prior to co-founding NaviMed Capital, he was a General Partner at Highland Capital Partners, where he focused on growth stage healthcare investments.
Organization: NaviMed Capital
Connect: LinkedIn
 
Notes From the Capital CornerTop takeaways from this episode
★     Structural change is driving growth in pharma services. Over the past 5-10 years there has been a lot of growth in pharma services within the healthcare private equity space. Structural changes have driven a lot of this growth, including having more drugs in development and a growing need to outsource the commercialization of drugs to third-party companies. 
★     Private equity firms see the appeal in backing pharmacy services. Despite the risks of the FDA stopping a trial or discovering that the science didn’t work, pharma services remains an attractive investment for private equity groups. Investors appreciate not being subject to government reimbursement and the strong gross margins present in the industry. 
★     Niche companies are especially attractive. Strategies for attractive deals within the pharma services space can include working with very specialized companies who have found success in their specific niche — including finding sales synergies and cross selling opportunities to help these smaller companies grow. These once niche companies then grow to a size that other companies and investors begin to pay more attention to. 
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How does a thesis-driven private equity firm develop its focus areas and decide which sectors will be most valuable? How do firm leaders identify sectors that will be good for the industry, but also successful investments?
We bring in one exceptional investor, Pete Tedesco of Health Enterprise Partners (HEP), to explain how thesis-driven investing works at his firm. 
Pete says it’s all about understanding the current industry climate. And in the coming years, he is expecting a big shift toward value-based care and away from fee-for-service reimbursement. With healthcare technologies as part of HEC’s thesis, Pete says the firm has begun to focus on investing in technologies and services that can best help providers make that transition.
“We're trying to think about it as, how do we help enable the next generation of providers across various specialties to succeed in value-based care models?”
In this episode of The Capital Corner, we also discuss the post-pandemic demands within the healthcare industry and the growing interest in investment of niche healthcare sectors.
Featured GuestName: Pete Tedesco
What he does: Pete Tedesco is a Managing Partner at Health Enterprise Partners, a lower-middle market private equity firm focused on healthcare. Pete was previously a Vice President at Olympus Partners, where he evaluated and executed leveraged buyout and growth equity transactions and served on the board of directors for companies in a range of industries. He is currently a board member of MD Alliance and Aware Recovery Care.
Organization: Health Enterprise Partners
Connect: LinkedIn
Notes From The Capital CornerTop takeaways from this episode
★     Health solutions to post-pandemic issues are important to pursue. One of the biggest challenges facing healthcare providers right now is staffing shortages, resulting in higher labor costs. One opportunity HEP is pursuing to improve outcomes for providers, Pete says, is investment in administrative automation technologies, which can help cut operational costs. 
★     Stay ahead of the curve. HEP’s thesis-based investing is all about paying attention to the industry’s needs and the areas that may have disproportionate demand. Behavioral health, women’s health, and especially the technologies providers need to transition to value-based care, have all been sectors at the forefront for HEP. “We're trying to think about it as, how do we help enable the next generation of providers across various specialties to succeed in value-based care models?” Pete says.
★     The future is value-based care. Many providers are preparing for — or have already shifted to — value-based care, Pete says. When considering investments in value-based care models, Pete says considering geographic density is still important. “But then it's also being able to create a partnership with the local payers and being able to create value-based care models that will work and will allow the business to succeed in that given market,” he explains. 
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On this episode of The Capital Corner, McGuireWoods’ Geoff Cockrell discusses investing in the small to mid-sized healthcare market with Seven Hills Capital’s founding partner Matt Pettit. 
As the leader of a firm focused on first round institutional capital investment opportunities, Matt also comes to his position with experience as the CEO of dermatology practice management company, Ascend Dermatology. His background means that he’s sat on both sides of the healthcare services table and has lived the daily experiences of the CEOs his investment group supports. 
But investing in small to medium-sized companies requires a much different approach than those used by larger scale equity firms. Instead of using traditional networking events, such as those hosted by the Association for Corporate Growth (ACG), Matt and his team focus on forming personal relationships with potential partners and will even enact letter-writing campaigns as part of their process. 
Matt discusses the unique experiences that come with investing in the low to middle market and shares how his company serves as a strategic partner — not just a funding source. By offering business development assistance and access to capital markets, Seven Hills supports its portfolio companies in creating long-lasting businesses with its operator-centric approach.
Meet Your HostName: Geoffrey Cockrell
What he does: Geoff is the Chair of McGuireWoods’ private equity group and serves on the firm's Board of Partners; he has extensive experience in mergers and acquisitions, especially in the healthcare space.
Organization: McGuireWoods
Connect: LinkedIn
Featured GuestName: Matthew Pettit 
What he does: Matt is the founding partner at Seven Hills Capital. Seven Hills is a long-term partner for management teams seeking to drive growth, change, and improved outcomes in healthcare services. Matt currently serves on the board of directors of the VersiCare Group and Reliable Medical supply company. 
Organization: Seven Hills Capital 
Connect: LinkedIn
Notes From the Capital Corner Top takeaways from this episode
★   Small to mid-sized healthcare businesses need more than just capital. That’s why Seven Hills is committed to forming meaningful relationships with its portfolio companies and offering support beyond money in the bank.
★   Successful integration requires exceptional communication. When a new partnership is formed, the transition is a fragile process that requires careful planning. Existing management and new management need to feel supported and prepared to navigate coming changes. Transparency and a detailed playbook help everyone involved feel comfortable. 
★   Investors need to know their limits. Understanding your firm’s capacity is vital to ensure smart investment decisions. Bringing in entirely new platforms versus add-on acquisitions require different time commitments and use of resources. Know how much your team can handle and include your current capacity...

The Capital Corner is a McGuireWoods podcast exploring investment strategies, capital structures, and topics relevant in today’s middle-market private equity. Join McGuireWoods partner, Geoff Cockrell as he and specialists share practical insights to inform your deal work.
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