Becker Private Equity & Business Podcast
Navigating Healthcare Investment Banking: Insights from Palm Tree’s Steven Richards 3-21-25
Fri, 21 Mar 2025
In this episode, Steven Richards, Managing Director and Head of Healthcare Investment Banking at Palm Tree, joins Scott Becker to discuss key trends shaping the healthcare deal landscape. From regulatory challenges and investment strategies to the rise of specialty pharmacy and healthcare IT, Steven shares expert insights on where the industry is headed in 2025.
Chapter 1: Who is Steven Richards and what is his background?
This is Scott Becker with the Becker Private Equity and Business Podcast. We're thrilled today to be joined by a brilliant investment banker. We're joined today by Stephen Richards. Stephen's a managing director and he's the head of healthcare investment banking at Palm Tree LLC. He's also a Kellogg graduate in the greater Chicago area.
Stephen, we're going to talk today about trends in investment banking, trends in the healthcare marketplace, and a lot more. Take a moment and tell us a little bit about your background and whether the Indiana Hoosiers are ever going to be fantastic again in basketball and football and a lot more. Stephen, tell us about yourself and Palmtree.
Thank you for the kind words, Scott. It's nice to be with you today. First and foremost, I want to thank you for the opportunity. You've done so much for the healthcare industry, broadly speaking, so it's a pleasure to be here with you today. I don't know if the Hoosiers are ever going to come back to prominence, but we are waiting with bated breath now that we have a new basketball coach.
We kind of became a football school this year, right? So we'll see how things go.
And let me ask you a question, because that's something that nobody ever saw coming, was Indiana under Cignetti become this fantastic football school. I guess once they hired him, he saw it coming, and the players that came with them, and Hoosiers had the best season ever. And basketball, hopefully, is back on the right track.
I mean, Bobby Knight was one of the great coaches to watch of all time and fascinating. I'm going to turn from that for a second, although I could talk about that, Indiana basketball, football all day.
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Chapter 2: What is the current state of healthcare investment banking?
talk to us about the environment and healthcare investment banking today what are you seeing what's active what's not active give us a sense of what you're seeing out there in the healthcare sort of deal world currently absolutely i think the first thing that we need to do to evaluate that is to actually zoom out and look at the broader landscape you know we had a period of time where deal activity
sort of slowed down to a pace that no one was really used to and it was uncomfortable for most. And amidst an increasing interest rate environment or unfavorable interest rate environment, we saw hold periods that have extended to record highs and record lows with return capital to LPs. And I think what we had all hoped
after 2024, where we did see an uptick across deal value and volumes, generally speaking, we thought that 2025 was going to come off to a faster start. So I think we've really kind of not had the start that we'd hoped for in 2025. And I think there's a few reasons for that.
You know, there's some policy changes that are abound in Washington, and that's creating some uncertainty, whether it be with tariffs or reimbursement policy and things of that nature that are just causing some pause. We've also had more regulatory oversight
with private equity involvement into provider services businesses and we've had much more regulatory oversight at the state level so there's been a lot of dust that has needed to settle and i think a lot of that did happen last year and now i think what we're seeing is we're dealing with some uncertainty with with tariffs and you know cost of capital inflation and really what that's causing is
more of a flight to quality. And the A plus assets are trading and folks are paying out the nose for those assets. But that's setting some unrealistic expectations for the B plus assets because the bid ask spread remains very wide.
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Chapter 3: What are the regulatory challenges affecting healthcare deals?
And so when you have unrealistic expectations, what happens is the deals kind of pull to the right, the deals get extended or timelines get extended, sometimes fail altogether. And I think that Many times, whether you're an entrepreneur or you're a private equity seller, nobody wants to be the guinea pig and run the risk of a failed process or the well being poisoned, so to speak.
So you see really a slowdown. And if you're not ready to bring an A-plus asset out to market, I think that a lot of folks have elected to look to the continuation vehicle as an option or just hold for longer periods.
And so let's talk about that, because you mentioned multiple different things. There's the continuation vehicles, which is one of the newer things we've seen the last five years. But also talk about the tainted asset concept. Somebody goes to market. They don't get the price they want. They pull the deal back or they go to market and the deal falls apart at some point. How much is that?
Both economically, it's a concern because they've spent money on legal and accounting and all those things. But how much is it a concern when they go back to market that they're going to be perceived as a tainted asset that prejudices them about trying to go to market in the first place if they're not sure that there's actually the right process at the right price?
That's always a concern for me. And I think that in some cases, it's a strategy for buyers to hold very firm on their bids and in the hopes that the deal will come back to them. And once it does, the perception is, well, you've got a busted process and
we're going to now sharpen our elbows during diligence, find more than what we likely would have originally, and use that as an opportunity to retrade down. So ultimately, I think it leads to leakage of value in most cases, not all cases. There's been many processes that I've been a part of in the past where we elected to pull
the asset out of market because we knew that we had an inflection point, you know, a big contract or some opportunities where we really hit some tailwinds. And we wanted to get a little bit more time in the rear view mirror so that we would get full credit on a run rate basis for that growth.
So it depends on the circumstances, certainly, but I think in an environment where there is uncertainty, the perception is generally going to be that there was something wrong. And yeah, Once you go out to market and you got to go back to the same universe, I think it just presents opportunities to have a less than ideal outcome when it's all said and done.
No, thank you. That makes sense. And are there deal areas? For example, there's parts of the practice management area right now. that have really slowed between sort of Fed funds rates, interest rate costs, debt costs, compared to margins being challenging. But there's other parts of the practice management universe that seem to be going fine. What's your sense out there of practice management?
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Chapter 4: How is the specialty pharmacy sector performing?
even better than I did before the difference between point solutions and platform solutions and people not wanting to have so many solutions is a, is fascinating. And talk, let me take you back to the next question about what are you most focused on and excited about this year and what advice for founders or entrepreneurs looking to go to market? Those two questions.
Yep. So I think we're, we're very focused on specialty RCM revenue cycle management. You know, you don't want to go against the R1s and the ensembles of the world, but you,
I think the denials management is a key area that a lot of folks are, are paying attention to, you know, on the front end, mid cycle, pre-auth, coding compliance, verification of benefits and other technologies that are, you know, disintermediating cost into the health system. Um, particularly, you know, inpatient rooms and operating rooms where a lot of the costs are, uh, specialty EHR, EMR, uh,
Behavioral being one of those subspecialty areas where getting outcomes data that's reliable is challenging and marrying that with the clinical data and the billing and the revenue cycle. So those are areas that we're particularly paying attention to on the healthcare IT side of things. And then pharma and pharma services, specialty pharmacy and home infusion is an area.
Pharmaceutical compounding, data and analytics. and in pharma i.t broadly speaking as it relates to what should sellers do in this marketplace i think given the regulatory complexity policy uncertainties inflationary pressures supply chain disruption potential with tariffs and just
the broader sharp elbows that are in diligence right now, you have to have a clear and actionable value creation plan to present when you go to market. Many firms, even sponsor-owned firms, are finding that their finance and accounting functions, particularly their data, presents risks that could leak value.
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Chapter 5: What are the emerging trends in healthcare IT?
So making sure that you kind of cross all the T's and dot all the I's, whether it's quality of earnings and things of that nature before you go to market. And doing a gut check on your regulatory cybersecurity and broader risk management are things that you want to get in front of.
And I'm a big believer in market studies as an important tool to demonstrate total addressable market, market share, differentiation, defensibility, et cetera. But speak to your advisors early because these processes are not always a linear path and they are extended processes in most cases over the last couple of years. So if you think you're too early, you're probably not.
And those are the areas that I would sort of focus on because that's where you're really going to get hammered in diligence.
Chapter 6: Which areas of practice management are seeing increased activity?
thank you very very much i'll ask you one final question and and steven you'll let me know if this is too complicated a question okay so bear with me and let me know if you can handle a complicated question steven let's fire away let's see we'll see in about 30 seconds so here is the question here is the question You know, are you more of a Northwestern fan or an Indiana fan?
Where do you wind up there? And who do you cheer for in the Michigan versus Ohio State game? Those are really – it's a combined set of questions.
Well, I don't even know if I can answer the Michigan-Ohio State game for fear of retribution here, but – I would say I'm going to go based on my son's preference there. He's more of a Michigan guy over Ohio State. He's six years old, loves Tom Brady. And so anything that Tom Brady did or does, he wants to do. So we're going to roll with Michigan there, although it sounds bad.
You know, sounds weird saying that out loud as an Indiana guy. But I'm an Indiana guy through and through. I will root. I will root for the kiddies when, you know, when my son wants to go to a game, as long as they're not playing Indiana. But I'm a Hoosier.
Chapter 7: What factors are influencing valuations in healthcare services?
God bless. And who is is Bob Unite, your favorite coach of all time in Indiana? Is that is that you could say that with a straight face, right, without getting political retribution for that? Or is there somebody else that you love as a coach besides Signetti?
Uh, I love Cignetti, but I, you know what? I didn't grow up in Indiana fan, believe it or not. I grew up a Kansas Jayhawk fan. I've got family that kind of has roots in Nebraska. And, uh, as a matter of fact, my, my freshman year in Indiana, Kansas was on the opposite side of the final four.
And I wasn't sure who I was going to cheer for if Kansas one, as it turned out, Indiana ended up playing Maryland and did not win that game. But, um, So I don't know that I have a personal affinity to Bobby Knight aside from the fact that he's an Indiana legend. I didn't grow up watching him per se, but you can't go wrong with Coach Knight.
No, and then Bill Self. Bill Self is a Kansas Jayhawk fan.
just for a moment if you're an illinois person i grew up at university of illinois bill self taught me that when a coach says he's never leaving i'm never leaving illinois that is a certain sign that he's in the middle of negotiations and leaving any thoughts on bill self are you still a kansas fan and i guess he's done an unbelievable job with kansas so you can't not like him
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Chapter 8: How is the aging population impacting healthcare services?
But as an Illinois fan, he did what Gary Barnett did to us as a Northwestern fan, you know, told us I'm never leaving. And at least I understood then that means they're leaving.
Well, yeah. And a bunch of the guys that he coached at Illinois that made that final four run, I went to high school with and knew pretty well. So I do love Bill Self. But when I was growing up watching Kansas, it was Roy Williams at the helm. Oh, sure. Yeah. But yeah, I still like the Jayhawks. I still root for the Hoosiers, but we'll follow the Jayhawks just due to family ties.
But yeah, we're a Hoosier family now.
Fantastic. And we could talk about Roy Williams, who went back and forth between UNC and Kansas as well, but I'll let that go. You've nailed all the questions today. Stephen, thank you so much for joining us. Again, Stephen Richards, head of healthcare investment banking at Palm Tree, just a fantastic leader and banker. Stephen, thank you so much for joining us.
Thanks for the kind words, Scott. Thanks for having me.
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