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The State of Private Equity in Healthcare with Amber Walsh of McGuireWoods LLP 12-11-25
00:18:53
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- [00:00]
A
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B
This is Scott Becker with the Becker Business and the Becker Private Equity Podcast. We're talking today with Amber Walsh, who's a lead healthcare private equity partner and also on the executive committee of McGuire Woods. We're going to talk to her about the state of private equity in health care value creation, what the deal market looks like, regulatory tailwinds and more. Amber, let me ask you to take a moment and introduce yourself and then we'll talk about how the private equity approach to healthcare has evolved over the last few years.
- [01:31]
C
Thank you, Scott. I'm very happy to be on partner at McGuire woods, focusing pretty exclusively on healthcare regulatory, but more extensively transactional work. And so much of that in the past 15 years has been private equity backed healthcare, although I certainly do plenty of work on both sides of the table for both sellers and buyers in strategic healthcare transactions as well. And actually working for buy side, sell side, occasionally even lenders for both strategics and private equity gives kind of a unique perspective. So some of the trends that we talk about, it's very interesting to see how those trends kind of materialize and shift back and forth between the strategic buyers and the private equity buyers. So it's fun to be on kind of all sides of the table and see these deals from different angles.
- [02:32]
B
Thank you. And as you look at the private equity approach to health care, there's a period of time where so much practice driven people acquiring physician practices and growing those into platforms. What are some of the strategic shifts that you're seeing today as the exit market seems to be slow as well? What are you seeing in terms of the private equity health care environment?
- [02:53]
C
Yeah, that's right. The Exit market has been slower and that isn't new to 2025. That's been the case for probably 18 months or so. Although we have continued to have plenty of deal activity, it was just nothing like it was in 2020 21. 22. People are doing different types of deals and there's still plenty of activity. There's still a lot of busyness and a lot of deal making going on within healthcare private equity right now. And as industry stakeholders look towards 2026, there's a belief that it will continue what has been a relatively slow but steady upswing back in activity. You mentioned specifically the PPM markets, the physician practice management, dental practice management, those as compared to maybe other subset sectors within healthcare. Certainly there is still plenty of deal activity in those spaces, but there are a lot of investments, no surprise to anyone, a lot of investments in more tech driven platforms. Still a lot of interest in facility based healthcare platforms. So surgery centers, imaging facilities and then a lot of interest in different delivery models, different delivery of care models. So value based care entities, concierge medicine and then the super super specialized areas of medicine as well. We're seeing activity, but you're right, I would characterize it overall as slow and steady, kind of back up, but nowhere near where we were a couple of years ago.
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B
No thank you. But it seems like a healthy level of activity when you see private equity funds traditionally a lot of bolt on acquisitions to build out a platform or to add onto a platform, then sometimes cost cutting to try and make sure just getting to stronger ebitda. What else do you see in terms of value creation opportunities in health care that private equity funds are working towards?
- [05:18]
C
I love this question and this has really evolved for a lot of different reasons over the past few years. There are a lot of reasons why you have the more sophisticated and successful investors focusing on so much more than just simple bolt on acquisitions where they're just 1 in 1 makes 1.5 or just cutting costs from the get go. There's so much more emphasis on different types of value creation and what I found really interesting is not just what is that value creation and I can mention some examples. What I find really interesting and really encouraging is that the value creation conversation is happening on a broader basis more consistently and with more kind of devotion early on in a deal process. And I'll give you a perfect example. We have an active healthcare private equity client who I really love working with and they have a very rigorous process that every advisor working on these deals, the lawyers who are focusing on corporate and tax and healthcare regulatory, all of the third party advisors, the Q of E firms, everyone at an early point in the deal, essentially when the investor has decided that they want to really put the resources in if it's a market based process, once they've made it through a few rounds, they have some optimism that they may be the ultimate buyer. They circulate and everyone is expected to understand the value creation plan and it's very, very early on and then that plan evolves over time and the advisors are expected to conduct our diligence and structure our deal documents, including, you know, how the equity goes in. If there's employment agreements of physicians. We're expected to be kind of faithful and religious to that value creation plan or flag if we don't think that the value creation plan is going to work based on what we're seeing in the deal. And, and that's just a perfect example. But they're not unique in that. I just have seen this play out in multiple deals and it's really encouraging because this is putting your money where your mouth is, where you expect your advisors and all of your resource support to understand what you're trying to do and help build the deal around that. So that's just when it appears. But I'm seeing it more and more and I think that's break very, very much.
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B
And I've seen again sort of the valuation value creation plans, the sort of strategies up front and sometimes they make immense sense and very clear and very easy to understand what you're trying to accomplish. Other times they seem all over the place. And I guess it really depends on the talent of the leadership team and the private equity fund in putting together those plans so that they really make sense and really are clear about here's what we're trying to do and when they are, they're just absolutely fantastic. Talk for a second about clinician alignment and trust and working with practices. We are so much about practices that are pleased with the private equity partner, those that hate their private equity partner post deal. What do PE back platforms get right and what do they get wrong when partnering with clinicians and physicians?
- [08:57]
C
Yeah, this is another really interesting topic that I love. It's a very meaty topic. And so much of this conversation is about physician satisfaction, burnout, attrition and retention. Topics that really transcend private equity backed platforms that are universal across the industry from private practicing physicians to hospital employed and everything in between. There are some consistent themes in there. And then of course there are things that are very specific to private Equity and you mentioned some things that can be really frustrating. And so I'll focus on that ladder what private equity investors have done right and sometimes do wrong. But I'll start with just mentioning some of the deal making climate dynamics that goes into this. So the longer hold times that we're seeing, the less active but still active exit environment. These things impact physicians who participated as sellers to the private equity investor building a platform. They obtained rollover equity as part of their deal consideration and in some cases they were promised, in some cases unfortunately, probably with too much assurance and assertiveness that they were going to have what is referred to as the second bite of the apple. If you keep some of your purchase price consideration in the platform, then when we exit the platform you will make some of your money back and we will have grown it for you in the interim period. A lot of deals, particularly a few years ago in the very, very hot climate where valuations were really high and it was in very much a seller's market, these assurances were made that now with longer hold periods have just not played out. And I think a lot of private equity investors have learned that those promises are now coming back to bite them because you have frustrated physicians who maybe are no longer obliged to stay with your platform, their employment agreements, their non compete tail. They're running out. And that that is an unfortunate set of circumstances that I think the savvy investors have been so much smarter about in recent years to make sure that one, they' being more careful about those promises. But then they're also focusing on other things beyond just the economics of what happens to that equity. So I would mention that as a starting point for the what have they done wrong to layer in of course with there are some funds, although I honestly don't see this as much as other people have reported funds that get too instructive and you know, controlling of platforms. I truly don't see that as much as is reported. But that would be in. In the negative. And then of course there's plenty of positives.
- [12:10]
B
No, thank you. And talk about where things go right with physician alignment, clinician alignment, where do things go right? Where do you see private equity funds doing this right?
- [12:19]
C
Yeah, so I a few different things. One, there's some structural changes that I've observed a lot of funds doing differently at the start of deals and then after they're invested in a platform for a while. Some of the structural changes that do make a difference, bringing people in, elevating in different clinical leadership so that you have the Right. People, not just one CMO who may sit at a corporate level and may not even be a practicing physician anymore, who's supposed to be the sole liaison. Over 30 states you see a movement away from that that's not as effective as pushing down and having multiple layers of clinical and operational leadership where you have physicians sitting at those more regional levels and kind of banding together on best practices, but also communicating the needs of the local physicians. And it's become such a focal point that we've gone. I'll just mention what we're doing right now. We are in the midst of finalizing our agenda for our annual health care private equity conference that we host every year in the spring. And we've always had a physician alignment topic, but it used to be very, very economic driven. Now the topic is moving. We're spending twice as much time on this topic as we previously did and, and it's multilayered and now we're talking about physician satisfaction trends and talking about some really interesting nuances to this which is the multi generational angle to this. And it's very similar to what you and I deal with. Scott, within the law firm there's these similar concepts that baby boomers are still depending on how you calculate what a baby boomer is. But by the classic definition baby boomers are still at least 20% of the working physician population. Yet of course we have Gen Z physicians who are now coming out of fellowship. And so you have this broad array of generations where baby boomers statistically tend to be more entrepreneurial, they are more in the ownership realms even as compared to my generation, which Gen X. So there's a real focus on this now. Are there perfect solutions? No. But just having the conversation and focusing on it and investing the resources into making sure that you get the voices in the room. That's where I think private equity is doing a much better job than in years past.
- [15:13]
B
Thank you. And that's it's so important because there are very different goals from the people that are closer to exit versus those are going to be practicing for the long run. Those are practical. Long run are looking at long term income, practice situation, culture, operations. Those that are close to exit are more focused often on those exit payments and what that might look like. The next question I have for you is take a second on this issue of many platforms and acquisitions by private equity funds are into their second or third internal recapitalization or have sold to a, to a continuation fund. What is the outlook for some of those? What's the what's the atmosphere look like the environment for some of these funds have been holding investment for for quite a few years.
- [16:00]
C
Yeah, you mentioned the continuation vehicles and that's been a really, really active part of dealmaking in the past couple of years. And of course continuation vehicles can look and feel a lot of different ways. But talking specifically about single asset continuation vehicles. So when you have a fund that really has we're talking about one platform, call it their OB GYN physician practice management platform and people will refer to those deals as the investor selling to itself. Because essentially what you're doing in the continuation vehicles is is and usually because of the elongated exit timeline, it's not ready to go to full market and do a full and customary exit or consider going public. Instead you're doing a continuation vehicle where the primary investor and the GP is staying in but you're allowing a liquidity event or some of the LPs. You may be bringing in different co investors and and in some cases you're allowing a small liquidity event if you have physicians that had rollover equity. Basically anyone in the capital stack may be participating depending on how it's been structured. And I think those have been successful and I mean success not on how they're going to perform after the deal happens because that of course depends on the quality of the asset that's put into the deal. The continuation vehicle, but more successful in that you're the general partner is able to at least kind of satisfy some of the investors that are harping on the fact that you haven't quite exited, whereas others are perfectly satisfied to continue to grow the platform and execute on the value creation strategy. So that's been a really interesting and kind of nice development and it's contributed to ongoing deal flow for the industry as well in the past 18 months or so.
- [18:17]
B
Thank you very very much. And Amber, I guess any other thoughts on the environment that you'd like to share today before I let you go, anything else that sort of comes to mind that we haven't touched on with respect to healthcare investing today that you're watching?
- [18:32]
C
Well Scott, you know that I am fundamentally optimistic in my viewpoint, so it's almost a caveat and a warning. But I do feel good looking into 2026 for not only the deal making climate but also the regulatory oversight. I expect continuing particularly on a state level and particularly in a few states that have been especially active and wanting to understand know about healthcare deals that are happening. I expect that to continue, but I don't expect there to be anything as dramatic as what we experienced the last couple of years and certainly not policymaking. That's anti physician ownership and physician driven healthcare, which you know is special to me. So between the deal making climate picking up a little bit, feeling like the regulatory climate is setting a little bit, I am very optimistic for 2026.
- [19:40]
B
Oh God bless that. Amber, thank you so much for joining us today on the Becker Business, the Becker Private Equity podcast. It's always great to visit with you. Thank you so much.
- [19:49]
C
Thank you Scott.
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D
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