In this episode of Point By Point, Morgan interviews Senior Vice President of Mergers & Acquisitions at North American Partners in Anesthesia, Dan Gofman, and Chief Administrative and Development Officer at Surgery Partners, Jennifer Baldock. They discuss current trends in healthcare investing, working with strategic versus private equity buyers, and what investors are looking for in the companies in which they invest. 


Morgan Ribeiro
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    Morgan: Welcome to PointByPoint. This is Morgan Ribeiro, the firm's Chief Business Development Officer and the host of the podcast. Today, I am joined by Dan Goffman from North American Partners in Anesthesia and Jennifer Baldock from Surgery Partners. Dan is the Senior Vice President of Mergers & Acquisitions at NAPA and Jennifer is the Executive Vice President and Chief Administrative and Development Officer at Surgery Partners. They are joining me today to discuss current trends in healthcare investing and offer advice that private equity firms and other investors, as well as healthcare companies, should consider before entering into a deal.

    Jennifer and Dan, thank you for joining us and welcome to the show. Would you like to each elaborate a little bit more on what you guys do and how it pertains to healthcare investing? Jennifer, let's start with you

    Jennifer Baldock: I'm Jennifer Baldock and I'm the Chief Administrative and Development Officer of Surgery Partners.

    Surgery Partners is a $2 billion revenue company traded on the NASDAQ stock exchange. And we're also majority owned by Bain capital. We are a short stay surgical facility company. We own about 130 surgical facilities across the country in 31 states. And we continue to grow from there.

    Dan Goffman: my name is Dan Goffman. I'm senior vice president of mergers and acquisitions and run strategy. For a North American Partners in Anesthesia. We're the largest single specialty anesthesia platform in the country. We currently have 5,500 clinicians, 1200 people in our back office, and we do work in 21 states. We cover hospitals, surgery centers and do office-based anesthesia care.

    Morgan: To start. What trends are you guys currently seeing in healthcare investing in deals and what sort of things are investors looking for in a company they are consider investing in?

    Jennifer Baldock: I think they're looking for health. No pun intended. They're looking for good financials, looking for a business that is value based. Not necessarily value-based, some people use the phrase value based, but that there are low cost setting for the care that needs to be done.

    Everyone's looking for the right setting for the right procedures at this point, and also just a healthy company that can continue to grow.

    Dan Goffman: I can speak a little bit to, physician practice management and where we sit in the value chain.

    we are hospital outsource. And so where we service is mainly within the four walls of the hospital, also in outpatient surgery centers, which more surgeries are being shifted to that setting. And also office-based procedures. Investors have been in these sectors for quite a while, but you're seeing dynamics of operating rooms within the four walls of the hospital becoming a little bit less important and there's a lower cost setting where you can do a similar procedure in an outpatient setting.

    Morgan: Recently we've seen a considerable increase in private equity investments in healthcare. I think that's been happening for quite some time, but more frequently over the last few years.

    Jennifer, Surgery Partners we consider you all a strategic buyer in transactions when you are acquiring a facility.

    What are the differences in entering into a transaction, as you see it, with a strategic buyer, as opposed to private equity investors.

    Jennifer Baldock: I guess I'll tell you what I say when I'm talking to a seller who might be interested in both. And we believe that strategics either have a good track record of growth and the ability to work specifically with physicians and healthcare or they don't. And so we believe we're a strategic that does.

    And as a result of that, we have a proven track record of growth over 20 plus years now in our company. We may think we make really good partners for physicians in that gross story. Private equity is different because they generally don't have necessarily a team that's been around for a long time, especially not 20 years continuing to grow as the same company.

    So for us, we hope that's a differentiating factor.

    Dan Goffman: There's a lot of numbers at play.

    This was a divestiture from a public company. And so the complexity of that transaction of that environment really requires smart people around the table and around the boardroom. And we couldn't do that without our private equity capital partners here. And so when thinking about, from the buy side who we're acquiring most anesthesia, it's a pretty fragmented industry.

    And so most are not private equity backed. These are mostly physician led, physician backed type organizations are a few that are PE owned, but that just provides a lot of white space and runway to go out in the 21 states that we're in and a new market. And explore those conversations culturally with clinicians to make sure that they're a good fit onto our platform.

    Morgan: When you all are considering entering into a deal with a provider or a company, what are you finding that's stalling, or maybe even killing deals?

    Dan Goffman: There's a lot of labor factors that play. I think this is a. Theme that we hear throughout, we talked about the out-patient theme.

    Another one is labor to make sure that, clinicians are out there and they're tired, right? We've gone through a COVID pandemic. That's just extremely challenging. And anesthesia is from a clinical perspective it's a tough specialty, right? If you think about whether you're providing care in the hospital or in a surgery center, so we need to make sure that culturally.

    We're fully aligned with who we partner with, not just with our own clinicians internally, but those that we go out and either acquire or bring onto our platform, we need to make sure that there's complete alignment. And so when looking at acquiring anesthesia groups across the country, we need to ensure that the alignment is there from a clinical perspective, from a quality perspective, and then from a compensation perspective as well.

    Jennifer Baldock: So 2022, still young, as far as transactions are concerned. Cause most transactions at least in my experience happened in the back half of the year, especially in the fourth quarter.

    So I'll just speak a little bit to the trends. I would say, I think they're a little slower this year than last year. There was a lot of pressures mid last year about taxes and other things that led to a lot of people participating in the market that might not otherwise. So I would say they're a little slower the transactions, but still Pipeline of healthcare deals, I believe out there.

    Valuations are high. So that's a lot. And when you have the high evaluations, you have to do the diligence to prove out what you're buying. And I think that's where you prove whether the deal gets killed or goes forward is some really robust diligence right now.

    Morgan: That being said, Could you all speak a little bit to valuations and what has changed? I think at one point they were at an all-time high that's likely shifting. Now. We'd love to get your input on that.

    Dan Goffman: Yeah, I think understanding organic growth and the history of that looking back even further than we did prior. You think about the COVID pandemic and when it started and looking back, even prior to that, to understand the operational trends. I think also it's important to really dig through the relationships with customers, the relationships with payers and with the understanding that, customers want to make sure that anesthesia is being provided in the OR, and that no one's coming in and shutting down ORs or miscommunicating what the staffing grids should look like. So really, from a valuation perspective and what the true under writeable EBITDA is, right? Anesthesia, most circumstances.

    This is a sort of an inherent compensation fix. So you need to make sure that whatever you're underwriting isn't below market and that, the clinical piece of it, the clinical compensation and benefits piece is really where market is. And then looking at the other add backs and making sure you get comfortable that you're not over or underwriting something that you're not comfortable with.

    Jennifer Baldock: Yeah, I think a couple of things have changed. We'll I'll start with, how do we get to a real valuation?

    And we have gone from doing a lot of our financial diligence in house, which we still do. But we also almost always now get a quality of earnings report from a company like L BMC or an blatancy themselves. We definitely spend a lot of resources on making sure we get to clean, funny. And that's particularly the case coming out of COVID because everything's is still a little bit COVID adjusted.

    When we see it, they've said things are going to get back to normal. We want to see the trend to that and make sure it's holding up. And then also there are all sorts of stimulus packages that we have to factor into our valuations at this point.

    Morgan: what are the top things growing companies need to consider before entering into a.

    Dan Goffman: Yeah, I think that alignment piece is important. I don't want to just meet the management team of an anesthesia organization.

    I need to be with the clinicians. I need to understand they're the lifeblood of our organization. And I need to understand what they're thinking. Right where they are in their careers, what's going to excite them and continue them upon the trajectory that they've already been on for so many years.

    We're also working, not just with MDs, but also with nurses, statuses CRNs and we can't get enough of them. We need to continue to make sure that they're graduating from nursing school and that we're getting them onto our platform. And really the recruiting engine is extremely critical.

    So there's a lot of components in complexities to our specialty. But I think it's. Too dissimilar from other specialties across the continuum.

    Jennifer Baldock: I think it gets back to the things I mentioned previously. Like you want to have a company that's healthy when you buy it. It's not in my mind. It's not the time right now, especially for companies to have choices.

    And that the supply of solar. It's out there in the pipeline is robust. You're looking for a healthy company whose earnings and growth can be proven out through diligence.

    Morgan: Dan and Jennifer, thank you so much for joining us and sharing your knowledge on the podcast today.

    I've really enjoyed our conversation.

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