- Leads dedicated healthcare transaction team
- Competition from strategics leads PE to target companies earlier
- Diligence includes patient demographics, claims data, revenue cycle assessment
Underlying the feverish healthcare activity these days are three imperatives, according to John Brock: “a need for cutting costs out of the system, improving the quality of outcomes and improving overall patient experience.”
Those factors are driving consolidation by strategic buyers and pushing PE funds “further downstream” as GPs try to buy companies “earlier in the process to get more reasonable valuations.”
In this high-multiple environment, “it’s important to do a deep dive in diligence,” Brock said. That means “understanding not only the company that you’re looking to acquire but the market it’s in, the patient demographics and the claims data behind that, seeing how that matches up with your investment thesis.” Advances in analytics offer a new “visibility” into the revenue streams of healthcare businesses. Then there’s the operational side: revenue cycle assessment, billing and coding compliance, IT and tax.
At Dixon Hughes Goodman, a middle-market full-service accounting firm, Brock leads a dedicated healthcare transaction team. “We do a lot of work with private equity firms in M&A, specifically financial due diligence, as well as audits post-acquisition and opening balance sheet work.” Brock’s group also offers integration planning, helping acquirers understand their to-do list for the first 100 days of owning a company.
DHG’s healthcare practice handles deals ranging from $5 million to $1 billion in revenue. “We have the ability to scale up pretty quickly,” and strategic clients like hospital systems do some fairly large transactions, he explained. But the middle market is the firm’s sweet spot, with a focus on providers and services.
Brock started his career in 2003, in the audit practice of a Big Four accounting firm, and got into healthcare transactions a little over 10 years ago. When the Affordable Care Act passed in 2010, “I kind of knew I was on the right track.” Anticipating a great deal of change, Brock decided to specialize in the sector. After five years at KPMG, where he was director of healthcare transaction services, he saw an opportunity in the middle market and left to build a platform at DHG.
Whatever the fate of the ACA, Brock said, there’s been a conceptual shift in recent years to paying for quality, or “value reimbursement,” versus a fee-for-service model. That’s been accompanied by increased discussion about the quality of patient outcomes. “The market has spoken: we have to do a better job with our healthcare and how we deliver it.”
Achieving scale is “the low-hanging fruit” of cost reduction, so the healthcare consolidation craze is unlikely to abate any time soon. “You have to be careful,” Brock said about operating in such a complex and hypercompetitive sector. “It’s costly to make a mistake.”