Becker Private Equity & Business Podcast
Healthcare Private Equity Carveouts: Trends and Insights with Amber Walsh of McGuireWoods LLP 3-7-25
Fri, 07 Mar 2025
In this episode, Amber Walsh, Partner at McGuireWoods LLP, joins Scott Becker to discuss the growing trend of healthcare private equity carveouts.
Chapter 1: What are healthcare private equity carve-outs?
Yeah, absolutely. And really focused particularly today on healthcare private equity carve-outs as a particular deal type and M&A strategy. And What a carve-out is is not your traditional sponsor-to-sponsor transaction where one sponsor sells out its equity to another sponsor.
We're not talking about deals where it's first institutional capital, where you have a founder selling to a private equity sponsor, or it's a stress deal. What we're talking about and what I'm really interested in today is healthcare private equity carve-outs
typically, most commonly from a very, very, very large cap mega healthcare company divesting one of its divisions or one of its assets to a private equity fund. And we really saw an uptick in that again in 2024, as everyone's kind of reporting and crunching the data from last year. And that's really been a steady uptick from 2010 in that particular area.
type of deal, which I'm really interested in today.
Thank you. And when we see these carve outs, we're seeing so much in the private equity world of people having a harder time exiting the sponsor deals. Like I just came across my desk, a sponsor deal where they're selling the deal, but they're selling it to another company controlled by the sponsor and more and more of that different ways to exit.
When you look at the corporate carve outs, what are you seeing there? What what's going on? What's driving a lot of that activity?
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Chapter 2: Why are carve-outs an attractive deal type?
Chapter 3: What trends are emerging in private equity exits?
Thank you. And when we see these carve outs, we're seeing so much in the private equity world of people having a harder time exiting the sponsor deals. Like I just came across my desk, a sponsor deal where they're selling the deal, but they're selling it to another company controlled by the sponsor and more and more of that different ways to exit.
Chapter 4: How do corporate carve-outs drive market activity?
When you look at the corporate carve outs, what are you seeing there? What what's going on? What's driving a lot of that activity?
Yeah, that's absolutely right. All sorts of different kinds of deal structures. But on the carve-out, why it's so attractive is that we've talked so much in the past 18 months or so about the challenges of getting more traditional buyout deals done, particularly requiring debt.
and the level of diligence involved and some instability in the regulatory market, but yet you also had these fully funded funds with dry powder that needs to deploy capital. And so even though everyone is expecting and already seeing that loosening up and getting more active back again in 2025, what the carve-out market did was allow private equity buyers
to acquire and reinvigorate assets that were considered a little more stable, often cash flow positive. They are not necessarily troublesome assets for the divesting company. it just happens that the divesting company no longer really considered that particular division or asset part of its strategic plan and vision.
Chapter 5: What types of assets are typically involved in carve-outs?
And so what you see is these mega companies streamlining, choosing to divest what they consider non-core assets, but they're really attractive assets for private equity buyers that are really stable and are going to perform well in diligence. And it just,
opened up a and this has been going on for you know as long as there's been private equity but again last year saw an uptick including in health care thank you and i think that's that's part of the point is that these are often good assets they're just caught in a corporation or company where it's not the primary goal of that corporation or company is that a fair statement
Chapter 6: How are mega healthcare companies managing assets?
Yeah, that's absolutely right. I mean, of course, every deal has its own features, but that is quite often what it is. It's just the investor makes a choice and there's a whole market and these private equity funds where they've got to answer to their LPs, they need to deploy their capital, they can be very attractive. And there's a real potential for high returns, although there's some challenges
to those as well, because depending on really how embedded that particular division or asset is to the rest of the company from which it is being divested, it requires the buyer to diligence in a whole new way sometimes. Sometimes it's hard to diligence when it's so core to another business line. And it also can be hard to operationalize
and instantaneously kind of take over and run it as the buyer. And so a lot of times you'll need some very serious transition planning, but there's a lot of potential upside in those deals.
No, fascinating. It makes a ton of sense. And Amber, any more observations? We're seeing sort of private equity is trying to put money to work. but having a hard time hitting that exact price number between them and the sellers.
And this might make a different avenue for private equity funds to put money to work because these are deals that are not necessarily, the corporation's trying to get a great price, but they're not as responsive to other investors and they've got other corporate reasons to exit the business.
So it might be easier to find a price, to come to agreement on price with the buyer and seller in these deals.
Yeah, that's exactly right. And I guess I'd give you just, Three more observations is within healthcare carve-outs, we definitely last year saw them in all subsectors of healthcare. So it's not just pharma and biotech, which may be the first things that come to mind, but we saw it in traditional services. We also aren't just seeing these carve-outs go to the mega private equity funds.
You see it in the middle market and you even see some lower middle markets But that becomes a little bit less common because they tend to be pretty expensive, which kind of leads me to my last point observations is some examples of these. So in the past year in services, which you know is where I kind of live and breathe, in traditional services, we saw KKR buy Eugene from Fresenius.
and rolling UGEN, which was Fresenius' fertility platform, into KKR's existing IVI-RMA deal, and then Carlisle buying Baxter's dialysis unit and rebranding as Vantiv, and that was a nearly $4 billion deal. So they're not all that expensive, but they can be pretty high-dollar deals, particularly when it's a high-performing asset like Baxter's dialysis unit. Just very interesting.
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