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Becker Private Equity & Business Podcast
The Deal Market: Private Equity, Venture Capital, & More 7-1-26
00:30:08
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- [00:00]
A
This is Scott Becker with the Becker Business and the Becker Private Equity Podcast. Today's episode is a session and discussion with four great leaders around the deal market, private equity, venture capital and more. This session features Jeff Friedman, private equity engagement director at Modbed and a brilliant career brilliant person, Art Walker, who helps lead up the healthcare practices at McGuire woods and a tremendous healthcare and private equity deal lawyer, Nader Sammy, the driver of two really successful businesses. Now the executive chairman of Nimble Solutions. He had previously built a separate revenue cycle business and Nader's a phenomenally smart leader. And finally, Dr. Paul Schlossar, a renowned spine surgeon who now runs a venture capital fund that invests in healthcare. So they'll talk about the deal market, private equity, venture capital and more. Thank you for listening to this episode. Our first panel, we've got four incredible leaders. We're going to talk about private equity, venture capital, what's going on in the space in the deal market today. I'll ask each of our our our panelists to take a moment to introduce themselves who got about 30 minutes total. So we'll try and keep the pace moving quickly. Bart, one of my long term partners at McGuire woods, can you take a moment to introduce yourself and then I'll ask Jeff and Nader, Sammy and Paul Schlosser to do so too. Bart?
- [01:33]
B
Sure. Thanks Scott and thanks for having me as always. Really enjoy these and hopefully you can say something that's of value. I'm a McGuire woods lifer. I've been doing this for about over 20 years now. All healthcare, all M and A, all the time. Most of my work is either representing founders on the sell side of transactions or PE funds on the buy side of deals. All in healthcare services from surgery centers to physician practice management to dental to post acute care, infusion, wound care, you name it. Tend to be a generalist in that sense and then also act as outside general counsel for regulatory compliance needs on the health care side for strategics as well.
- [02:19]
A
And Bart, how big is the group today? The practice at McGuire woods in health care and you're located and head up the Charlotte office as well. But talk to us quickly about the size of the group today.
- [02:29]
B
Sure. So we're one of the top five biggest health care practices in the country. We're spread out across the country. We're geography agnostic. I sit in the Charlotte, North Carolina office but work on stuff all over the country. I've got a meeting tomorrow night in the Northeast. I've got a deal in Texas, another one in California. And another one in Michigan right now. So we're really all over the place, regardless of where we sit and continue to grow out the group. More recently we've been expanding into pharma and pharma services in a serious way with four recent lateral partner hires over the last 12 to 18 months. And we're continuing to grow in that direction as many of our clients are interested in that as a step beyond healthcare services into something that has a little bit more exposure to life sciences as well.
- [03:14]
A
Jeff, can I ask you to take a moment to introduce yourself and what a fantastic career you've had?
- [03:18]
C
Jeff yeah, absolutely. Thanks Scott, for inviting me. I'd love to be an individual contributor and sponsor. That really should have been my current employer, ModMed, which is a software company. But that's where I work now. I've spent a lot of years in healthcare. I've run a dental business, I've run an ocular ophthalmology business. I've run several cancer facilities. I've spent time at a payer, I've spent time at a manufacturer and a couple startups. So I've got the gray hair to prove it. It's a thrill to be on a panel with distinguished people and more importantly to listen to the questions that you pose. I think you've got a lot of years in this business. It's an honor to be here.
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A
Jeff. Thank you so much. And talk a little bit about. You've got this title of private equity engagement director, at least one of your titles currently. Tell us a little bit about what you do with ModMed and what ModMed does.
- [04:15]
C
Yeah, so ModMed's a software company. We are in specialty specific areas. So think GI, think dermatology, think ophthalmology, think orthopedic medicine. We're in 12 specialties. It's an EMR, PM patient engagement system. So the thesis essentially for ModMed was that if we had conversations with private equity sponsors that are buying practices that are looking to invest, if we had those conversations and got in at the ground floor around are you thinking about a tech stack change? How do you think about AI going forward? That the likelihood of us being, you know, married, I think at the early stages would be a lot greater. It's actually morphed into more of a, of a CEO whisper, if I can say it that way. I've spent a lot of time in that chair. Many of the CEOs that I talk to are doing great work. I think sometimes it's not bad to have a friend. It's not bad to have someone that has lived in that space, whether it be PE or privately backed with your positions. I just think it's a lonely chair. And so for me, the role has really morphed in private equity, but then beyond that into really being a connecting point for our company and the CEOs and the, and the ELT. ELT of a lot of these big practices.
- [05:40]
A
Fantastic. And you've done a remarkable job at it. Nader, let me ask you to take a second to introduce yourself and tell us a little bit about your history because you were an M and a person to begin with and then got into business. Talk a little bit about yourself and introduce yourself, Nader.
- [05:55]
D
Thanks, Scott. So, yeah, I guess maybe I'll start from the beginning then. Yeah. I started life as a corporate finance attorney, then moved into investment banking in New York and San Francisco and ended up leaving that to start a company which we built up and sold. Built up to about 2,500 people and sold. And then I acquired a company at the time called National Medical, which is today nimble. I ran it as CEO for about 14 years. We did a recap with a private equity firm. I ran it for about another three. We did four acquisitions in that time frame and then I transitioned over to executive chairman about two and a half years ago and we've done a couple more acquisitions since. So to your point, yes, I've been involved in and around the M and A world from different angles throughout my career.
- [06:47]
A
Thank you. And full disclosure that Nader is a very, very close colleague for a long time. I've had the pleasure to serve on one of his boards of directors and just as good a leader as they come. Nader. Sammy so Nader, thank you so much. And we're thrilled and honored to have you here with us today. Thank you, Dr. Schlossar. Paul, you probably have one of the most interesting careers of anybody. Tell us a bit about your career and what you do today in terms of investing and so forth. Paul.
- [07:15]
E
Thank you, Scott. So I am an orthopedic spine surgeon by training. I practiced 28 years in the San Francisco Bay Area, ran a private academic group and was very fortunate to have been in the Bay Area. Both to have been in the Bay Area in those times when things were growing and somewhat still affordable. But secondarily to have seen the really dramatic rise in opportunities in orthopedics and spine, given where I was geographically and the visibility of our group. I was doing private equity, venture capital due diligence during my whole career I worked with four different companies over the 28 years that I practiced with four different companies that had successful exit everything from being a strategic Advisor to an 11 year run as a chief medical officer for Titan Spine and a strategic advisor to relevant that exited to Boston. I decided to go back to business school A few years ago I got an executive MBA and then pivoted into the consulting and venture capital space. So I co founded a venture fund, we just closed it, a very small seed stage fund aimed with a kind of a dual mandate. One is to in an organized manner leverage clinicians, physicians, healthcare executives, all of whom are various aspects of our limited partnership and then number two, try to address the gap in relative gap in clinically intelligent early stage investing, seed investing. So we're sort of sitting in that small spot there and we've deployed into three companies so far and we just literally closed the fund about a week ago. So we're getting ready to fully switch into deal deployment mode right now.
- [09:02]
A
Well, congratulations on your career and what you're doing. I'm going to ask each of the following question, really is what are you seeing in the deal market today? And I'd love you each to answer from your own perspective. Whether it's the venture world, the PE world, obviously one serves as executive chairman, one serves side by side with the CEO in their company. Bart sees a whole number of different things and also serves as an advisor to several companies and Paul's an investor. Paul, start with you and go back around the horn that way. Paul, tell us what in each person, just think about a minute to 90 seconds each. What are you sort of seeing in the deal market today? Is hot, cold. What do you see out there?
- [09:41]
E
Well, again with the caveat that I'm viewing the world from an early stage seed healthcare investor perspective. Deal flow is strong. That's really not a problem we're seeing and we've aimed at as two aspects of our investment thesis. Women's health, which has been undercapitalized for quite a while, as well as the operational efficiency tools that are really significantly underrepresented in health care. So tools that are genuinely helping deliver better care, not so much the clinical, but the operational side. My whole world primarily, or 3/4 of my world, was in the device space, orthopedics and spine as I mentioned. That's a pretty mature market now. Not to say that there's not opportunities there, but we're definitely looking at areas of deal flow, inbound deal flows that include workflow, supply chain, clinical care and I mean everything from scheduling tools to, you know, the AI decision making tools that clinicians will use in Women's Health.
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A
And Dr. Solstar, anything that you're particularly excited about, is there one area, one company you've invested in or anything that you're particularly excited about in terms of the areas that you're looking at?
- [10:59]
E
Yeah. In the three investments we've made, I'll talk about one and we can touch on it later. But the things that are in the revenue cycle management, I know that's a crowded space, but it's so fragmented and so confusing to the average customer, the average patient, the clinicians who provide that care, the opportunities in revenue cycle management that bring a organized and cohesive platform, one of which is one of our investments, which is called Clear Health. One single point of solution for the entire exposure of a patient's out of pocket deductibles. Usually you have to adjudicate those as a patient across all these providers, hospitals. So things that bring cohesive organization to revenue cycle management and drive revenue is a good place to be in my opinion. That's the one that I'm really excited about so far in our portfolio.
- [11:53]
A
Thank you very much. And fascinating what you're doing and what a fascinating transition. I wish we had more time. We'll talk about the transition from orthopedic spine surgeon to investor and what that is like. Nader, I'll ask you to talk about something similar first. What are you seeing in the deal market today? I know you watch it, right? Really, really closely from being a deal professional a long time ago to being heavily engaged in deal activity today and watching what others doing, competitors are doing, investors doing. What are you seeing out there?
- [12:23]
D
So I think the most interesting change that I've seen in the last year is I kind of refer to it as almost an AI screening framework. And it is now. We live in the HCIT world. So in this, in this world, step one is investors are really looking at the industry broadly. They're taking a step back before even looking at the business and taking a step back and saying is this business going to be here tomorrow? Is it going to get disintermediated by AI? And then looking at what moats does it have, what expertise, et cetera. So assuming you get past step one and the conclusion is yes, we think this business will be here tomorrow, given its expertise, its knowledge, etc, then, you know, step two becomes, you know, what will be the impact on that business? If you have a call it a 200 million dollar company and you fast forward that Same business, assume no growth. That same business, what does that top line look like? Do you lose 20, 30% of revenue due to, you know, different pricing structures with the emergence of AI, however, if that happens, what happens to, you know, your margins? Maybe they go up, you know, maybe client retention gets better. So it's trying to understand the impact. So the first two questions almost are industry, industry, what's going to happen? And then once they kind of, you kind of get through that assessment, then the third one is, okay, now the company we're looking at, where do they. Where do they, Are they. Where are they in their AI journey and are they in position? You know, are they early stages? Are they, you know, behind? Are they in the middle of the pack? Are they ahead of the game? Are they positioned to win? Are they going to back the folks? Or maybe, alternatively, it's an investor who has their own conviction around AI and a team and maybe can come in and get into a deal at a bit lower price and then apply AI later. So really interesting discussions that probably even six months ago weren't happening at the level they are today.
- [14:30]
A
It is fascinating to watch the impact of AI on people looking at deals and trying to explore deals. I saw a recent headline today, Microsoft CEO Santa Nadella, which has been the software powerhouse business software powerhouse forever, really talking about how some of the AI powerhouses might have an unfair advantage at some points and some of the challenges they will face, which seems ironic from sort of one of the top, top companies of all time in terms of market cap and size, complaining about what AI might do to their business and sort of taking shots at it. I thought it was fascinating, but also recently was in discussions with a software company that's having a hard time selling right now because people are very unsure of what margins are going to look like and the business is going to look like in the AI universe. So that becomes a real, real issue as everybody looks at things. Jeff, let me turn to you, and what are you seeing out there in the deal market today? And are you seeing opportunities? What do you see out there?
- [15:25]
C
Yeah, you know, it's not the position. You want to be the third of the panel with the same question, but I'll tell you, it's interesting. Paul hit on a couple things that I want to multiply a little bit. And I come from a lens of an operator, so I've spent my time at practices and at healthcare technology companies. I went to a conference a while ago and somebody walked out and said, wow, let me write that down. You got to have good operations, I'm not so sure that this is like the new in vogue thing. You have to have good operations and you've had to have them for the last 55 years in healthcare. But what does that actually mean? Good operations means that you are taking redundant and mundane tasks and you are doing them faster and better and more efficiently so your staff can actually do something that does one of two things. Either allows the doctor to see more patients or spend more time with his patients, or there's an roi. So if you're not doing those things, I think you're really a business that is ripe for a consultant who comes in and says, wow, you want to sell, but you're nowhere near ready. So I see Scott, a lot of people thinking they're ready to go to market, but they're not. And they have this vision that I can get 15x on my existing EBITDA and they really aren't even close. The other main point I'd make, and this is a stat that I think is so telling and it speaks to what Paul and Nader Talked about for AI. So since 1970, so a while ago, the number of physicians in health care has increased by about 150%. So more physicians, we still have a massive shortage, but there's an increase in physicians. Makes sense in that same period, 1972, today there's almost a 4,000% increase in administrators. So what do you do? That doesn't mean you fire a bunch of people. What that means is you have to find a way to, as I said earlier, get the doc more time with the patient. Sometimes that means seeing more patients and find a way to have an roi. So I see people that can do that. Whatever. It's a ppm, it's a health tech company. If you can do those things, there's a great market for investment and the numbers would reflect that. If you can't do those things, you better figure out a way to do that if you want to have some kind of exit. So it's really a, I think it's a great time, but you got to be pretty clear about what you're doing in those areas.
- [18:19]
A
No, and I love that concept. You better have true, sort of like you could call it product, market, fit or truly something that does something that makes some value, it adds some value. It's, it's, I think, a great point. Your point of operations is so well taken. That stat 150 increase in doctors, 4,000% increase in administrators is a frightening and daunting stat. That's an insane stat and I know a true stat, but that's literally remarkable. Bart, what are you seeing in the deal market today? You see it from a bunch of different perspectives. Very busy deal market, obviously at the top of the public markets. It's crazy busy. But what about in the private equity VC world? What are you saying? Sure.
- [18:57]
B
And I'd agree with what Paul said earlier from the VC side that deal flow is still very strong. There are still opportunities out there. There are a lot of opportunities coming across the DES of the PE funds. What we've seen is they're being more selective though. Gone are the days when there was sort of a gold rush around healthcare services where, you know, we would see people coming to us, hey, we've got a healthcare deal we want to do and we're having to do a lot of education from ground one, from, from ground zero because there was a lot of what I'd call tourists in the healthcare space. I don't mean that in a pejorative sense. It's just funds that weren't really, you know, dyed in the wool healthcare investors, they're trying to diversify into or try to catch the tailwinds associated with healthcare services consolidation. We're not seeing that anymore. What we're seeing is more dyed in the wool healthcare investors. It's a central part of their investment thesis. Those funds are still doing very, very well and they're picking their spots. They're not putting a bunch of ships down. They're being very disciplined about their investment theses and they're executing. Those are the ones that are doing well today. They're still doing well. The ones that have done less well. And we have seen quite a bit of distress recently and I'd say that is a development. Within the last 12 months we're seeing more and more either PE fund clients come to us or founder backed companies, primarily PE backed or companies or platforms that have been through one recap or two that are having challenges hitting their loan covenants. They're looking at maturity dates coming on a lot of their debt. So they're either looking to refinance out of that or to cut a deal with their lender. So we're seeing some creative deal structures come around. Those that is a real trend and definitely something to keep our eye on. But it is separating the winners from the losers. I think there are plenty that are still doing really, really well, but there are some that are showing signs of cracking and they're going to have to do something. I think the reason we haven't seen more on the exit side of the PE backed platforms is, is they're getting good returns but they're not what they want. So they may be getting a 2 or 3x on their investment but not a 4 or a 10. And so a lot of them are playing the waiting game. They're being very patient about when the right time is to exit. And they're looking beyond just dollars and cents into deals where they can keep some chips on the table. We're seeing more and more funds retaining rollover equity into post transaction. We're also seeing continuation vehicles and we're seeing continuation funds where they still think that they've got more room to go on their existing investments. So we've seen a lot of that happening too. But within that backdrop or against that backdrop, we're still seeing quite a, quite a good number of really successful, good big exits on the private side. And the private markets still have an appetite for those deals both on the buy and sell side. So we're, you know, at least at the firm anecdotally, we're having a very busy year.
- [21:53]
A
Thank you so much and fantastic. So we've got about seven, eight minutes left. I'm going to ask each of, and Bart, we'll have you on the next panel as well. So Jeff, not or Paul, I'm going to ask you each one of the next three questions. I'm going to start with Jeff so I don't have to hear him be upset with me for asking the same question everybody else has asked. So Jeff, I'll start with you. Where do you see, you know, I'll give you the question of what separates companies attract strong investor interest from those that struggle. Where do you see sort of companies that like, you know, there's, there's a lot of interest there. Is it management, is it cash flow? What drives strong investment interest where compared to those that struggle in getting investor interest?
- [22:32]
C
Yeah, so, so I, I, I think if you asked this question 10 years ago, it's the exact same answer and I don't want to be coy about that or glib about it. I mean, let's look at what a good healthcare business is and it's probably universal to other businesses, but it's a, it's a simple formula. It absolutely does start with the management team. You cannot have a good management team, a good company without a good management team. Management team is not just administrators, it's physicians as well. And I'm not saying that because Paul's a physician, but it's absolutely that combination. So it starts there. When we talked earlier about AI and we talked about, you know, your roadmap for those things, I think you, you know, that's a whole session in itself. But if you don't have specifics around how you are putting an AI tool into your business, you don't have that, that actually mapped out, I don't think you're very attractive. I think that's a big part of it. I'd say one, one other key point there, there's a bunch of point solutions which is to say I'm gonna bolt it onto my emr, you know, warning here, but I work for an EMR company right now we see us having a mode around all those things and wouldn't you rather out of practice have those tools within the EMR versus bolting it on, whether it be RCM to your point earlier, Paul, or it is a voice AI component that's best served when it's done internally. So that's a key point. The last thing I'll tell you is the space. Which one are you in? Are you in gi? Are you in women's health? Are you in dental? Are you in health tech? Many of those things start with the slide that says aging population, we need, we can have more patients. Everybody has that first slide. But what does that mean? Are you actually able to attract people that are not necessarily insurance dependent? You've got a different level of cash flow. You can put yourself in a position where you can see the next five years. Look, those metrics aren't new. That story isn't new. It's the same we've had 10 years ago. I just think, as Bart said, there's a lot more scrutiny there is today than there was, I don't know, even three or four years ago.
- [24:42]
A
Thank you very, very much. Nader. Let me ask you this question because you spend a lot of time in these areas. Where are valuations holding up best and where are you seeing buyers be more selective? We talk about a lot around healthcare technology, around software, around labor heavy businesses. Where are you seeing valuations hold up and where are buyers becoming more selective?
- [25:11]
D
I think part of it is kind of think about the kind of three step process I talked about. One, you've got to kind of get through that from an AI perspective to sort of be interesting right now. And then, you know, one of the things you'll hear a lot, whether it's investment bankers or investors talk about is the rule of the rule of 40, the rule of 60, etc and so I think a lot of people are and again much more stringent on that. Whereas maybe again a year ago companies that were a little bit lower on that. But for those who don't know what that mean, rule of it, take your growth rate plus Your EBITDA margin equals 40 equals 50 equals 60 equals whatever that number is and kind of that threshold is right around 40. I think today in an HCIT world where to make companies sort of interesting and the more you can get up to 50, 60 and up and some investors are going to lean more in toward the growth side of that and some on the profitability side. But I think being able to, you know, showing those demonstrated financial, that financial performance and just a quick subset of that and I'll be, I'll be quick on it. But you know, that breaks down to you know, high quality revenue, recurring revenue with high client retention is really important. The growth rate of your, the historical growth rate of your revenue plus a solid pipeline to show that that's going to continue a proven ability to grow in a profitable way. And then finally the AI discussion. Where are you in that AI journey? So, so I think it's that combination. Where do you, where, where do you kind of fit in that rule of. And what comprises it? With those points I just made and the ones that are going to, you know, right now perform better. I think it's a market that is, it's really kind of bifurcated. There are going to be winners that are going to get premium multiples today and they're going to be a lot of deals that sit and don't get done.
- [27:16]
A
I think that that bifurcation is exactly right. Nader, thank you so much. Paul, let me turn to you. We've got a couple minutes left on this session. Looking ahead 12 to 24 months. Biggest opportunities and risks for investors and founders. Where do you see the biggest opportunities for investors?
- [27:35]
E
Well, I think Scott, there's this convergence. Obviously everybody's talked about it. I'll echo it again. This AI driven opportunity to finally technology and medicine has been EMRs that have been poorly designed and usually poorly adopted but you know, clinically relevant AI driven support tools and I mean operational and clinical. And then I'm, I'm also sort of sensing there's a couple of things, you know, the days of big employment that, the days of these private equity roll ups of orthopedic groups, et cetera, the days of, of all the hospital systems going up and buying all these practices, I'm seeing a little bit of a wall there and I really do think, I think value based healthcare, regulatory, regulatory forced onto the market is increasing with MA plans and secondarily self funded insurance opportunities where really highly efficient platforms can help primary care all the way up through the surgical specialties. The platforms that close the loop between what would be a surgical outcome and a financial outcome I think are opportunities. And then the risk that I see, you know, there's also a talent risk. You know, some of these operating or engineers, the AI scientists, the clinical informatics specialists, they haven't necessarily been attracted into the ecosystem of startups or healthcare in and of itself. So the talent, the talent needs to be in healthcare from a systems perspective, data engineering, data scientists and they have a lot of choices. So we're paying careful attention as we diligence companies. To Jeff's point earlier, earlier, they have to have domain expertise, clinical relevance, but also we're curious about what's their plan for their data and who is their data team, as it were. We do start to look critically at that. But I see a lot of opportunity to be quite clear in this resurgence of private practice and direct to employer contracting, self funded companies that are sick and tired of 18% premium increases a year.
- [29:41]
A
Paul, thank you so much. I want to thank all four of our panelists. There was somebody who mentioned about the million 100,000 physicians versus 345 million people. And whoever did say that, we couldn't agree with you more if that's the point, that we've got a daunting shortage of physicians versus compared to our population and that's a whole other subject and discussion. But we think that is a daunting, daunting problem. Thank you for listening to the Becker business and the Becker Private Equity Business Leadership Summit. Again, thank you to each of our sponsors. McGuire woods, perpetuate capital, Thinkspan Priority Search Management Range Product Partners, Fairdom Warner and Elevate Talent Advisors. Thank you very much.
- [30:30]
F
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