Becker Private Equity & Business Podcast
Navigating Healthcare PE in a Shifting Market: Insights from Matt Wolf of Elliott Davis 5-14-25
Wed, 14 May 2025
In this episode, Matt Wolf, Valuation Leader and Healthcare Senior Analyst at Elliott Davis, joins Scott Becker to share key trends shaping private equity in healthcare, from aging portfolios and dry powder pressures to the impact of rising interest rates on deal strategy.
Chapter 1: Who are the hosts and guests in this episode?
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Wir sind begeistert, heute mit Matt Wolf zu sein. Matt ist ein brillanter Analyst, thought leader in this healthcare private equity space, brilliant, brilliant person, one of our most listened to guests. Matt, take a moment to introduce yourself and maybe we could talk about what trends you're watching in private equity currently.
Chapter 2: What is Matt Wolf's background in healthcare private equity?
Yeah, thanks, Scott. So, Matt Wolf, I'm a director at Elliott Davis. I spent my career in healthcare valuation and private equity, working on private equity-backed healthcare companies really through the life cycle.
And over the past decade or so, I've really focused on the analyst side of that as well and studying the market, putting together our content and talking about it to really anybody who will listen to me. So I'm always... Always excited to be on the show and talk about that. And, you know, I guess with the... Vielen Dank. Vielen Dank. Vielen Dank.
volume um you know it's we're now also kind of in the middle of conference seasons i've been talking to a lot of sponsors just about what they're seeing what they're trying to do and everybody wants to get deals done they want to deploy capital they want to exit long in the tooth um Aber die Zeitung kann noch nicht richtig sein und wir suchen für die richtigen Ziele.
Chapter 3: What are the current trends in private equity deal activity?
Die Verwaltungszyklen sind länger. Die makroökonomische Unwahrheit, die politische Unwahrheit, die bleibt immer mehr. Einige Ziele, nicht alle.
You know, one interesting data point, though, is in terms of IPO announcements, just the number of announcements are actually up year to date over the past couple of years, which is which is a good sign, I think, you know, at least in terms of the number of announcements, not necessarily the total number.
you know, market cap trying to go public, but at least the number of companies going public is, you know, those announced IPOs is higher than it's been the past couple years, year to date, which I think is strong, right? We want strong capital markets. It's an important part of the overall economy, even in the real economy, right? Access to capital. And so there's some bright spots there too.
Chapter 4: How is the IPO market affecting healthcare private equity exits?
It's just, you know, this policy uncertainty will create
challenges for management teams for sponsors investors and you know we're all kind of navigating it together no and your point is so well taken in the ipo market because that's important quite frankly because it leads to a spot where where it's another exit opportunity for companies in different ways grants are often larger companies some of those are not huge ipos either and it provides another
Off-Ramp to at least part of an investment and partly a liquidity event and at least the potential for one going forward. And I think that is fascinating to watch too. And so that's good news.
And as the stock market rebounds, hopefully as debt costs sort of start to normalize and see a little more certainty as trade deals start to get announced, that the markets do become a little bit easier to navigate and between buy and sell. I mean, the word I've heard so often recently is pause, that people were gearing up for deals and then there was a pause in the markets.
And so we'll see if that's a pause or if that becomes elongated.
Ja, absolut. Und die Faktoren, die ich weiterhin schaue, sind in Bezug auf diesen Pause, es ist wirklich zweifelhaft. Einer ist einfach die Vintage der Investitionen, die da draußen sind, richtig? Also zum Beispiel Gesundheitsberatungsunternehmen, also Anbieter, Pflegegruppen, Dinge wie das, die privat beteiligt sind.
We now have, we're approaching 60% of the PE-backed ones have been held for five or more years by their primary sponsor, right? Those need to get turned over. That will push deal activity. And then we also look at dry powder and middle market buyout funds. And this is, again, more healthcare specific, but it's around $250 billion of dry powder for funds that say they invest in healthcare.
And there's, you know, overlap because some funds will invest across multiple sectors. But that's an incredible amount of dry powder. a very aging portfolio that needs to turn over. And that will continue to push to get deals done. And I think we're still working through this cycle of moving from an era where
Investors were rewarding growth at all costs into now this new environment where investors want sustainable cash flows. They want margin. They want financial sustainability. And for companies that have that financial sustainability story, they will have access to capital markets. They will have interest in deals. And we will see those deals happen.
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Chapter 5: What challenges do policy uncertainties present for investors?
And looking through the IPOs that have been announced, We see that. That's a consistent theme in the stories. Whereas even two years ago, you're still getting a lot of, well, we need to go public so that we can get capital to scale up and be profitable. That's not the story anymore. So, yes, definitely a pause.
And the sort of duration of that pause is going to look different for different segments of the real economy, different industries, different sizes of companies. But there are some underlying macroeconomics, some underlying capital market factors that will continue to drive deal volume, right?
It's not going to be, you know, like the absolute craziness of 2021, but it's not going to go to zero either.
No, but one of the points you made is such an important point. Some of these older vintage deals might be provider services deals. And that's of concern. And here's why. The world around aggregating provider services over that six to eight year period has changed dramatically. So even as the capital markets open up and change, some of those businesses, depending on specialty,
are in a much more challenging spot in terms of sustainable cashflow and growth than they were at some point. So you look at things like certain types of platforms built around obstetrics, for example, OB-GYN, or provider services, or practice management, that at one point there was a relatively rosy forecast for.
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Chapter 6: What factors influence the current pause in deal-making?
Now, between reimbursement challenges, shortage of doctors, still inflationary costs, the cashflow in those businesses is much tougher than it was expected to be three to five years later. And whenever things get held for a much longer finish than anticipated, the core thesis around the original investment often can change.
And that's a whole other set of circumstances that causes some concern, depending on how those companies performed compared to a core thesis, because over a longer period of time, those core theses either play out or factors change. And we're seeing a lot of that, I think.
Absolut. Und es ist so ein guter Punkt, den du mitbringst, Scott, ob es um professionelle Geräte im Allgemeinen geht, ob es um Physiotherapeuten oder andere Verkaufsfirmen geht, oder was auch immer.
Chapter 7: How do aging portfolios and dry powder impact future healthcare deals?
Wir hatten diese PE-Vorschläge, als Geld weniger teuer war, die essentiell finanziell ingeniert wurden, um den Verbrauchern, den Verbrauchern dieser Unternehmen, um wirklich das Gleiche oder mehr zu machen,
monthly annual income that they were making plus get paid out for their their capital as part of the acquisition and now in this higher interest rate positive real interest rate environment that's just not financially sustainable right if you're a business owner and if you get a check for your ownership interest in that business then Ja, genau.
um you know there's a lot of a lot of investors that are kind of frankly holding the bag and not not all of them certainly but you know there are some that are in some real tough uh positions that are going to have to exit at um unfavorable multiples unfavorable cash on cash returns and that's going to have to work itself through the system particularly in any sort of sort of owner operator professional services model no 100 i think that's a fascinating additional take that whenever vintage and and
Hold periods get longer and longer, there becomes less certainty around those theses. Just like if you buy a house in a neighborhood, you know in three to five years that neighborhood is probably still going to be good. Much harder to project what's going to happen in 15, 20 years. And similarly with a lot of these companies bought a long time ago. What a fascinating time in the markets.
Matt, anything else you wanted to share with us today before we wrap up?
Yeah, I would just say, you know, as we're working through this regime change that I feel like we've been talking about for at least a year, maybe almost two years, it will take time to work out. There are challenges, but, you know, those challenges...
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Chapter 8: What is the shift from growth-at-all-costs to sustainable cash flow in PE investments?
create opportunities right so there are definitely opportunities for investors for operators might require some short-term pain of exiting certain companies or businesses or segments of the market but as as the regime evolves into this new sort of positive real interest rate environment that looks very much like other cycles did again we've talked about this before but the
The 15 or so years between the global financial crisis and the pandemic, where interest rates were very low, that was the aberration. Now we're working back towards normalcy. And as we work through this transition, there will be a lot of really great opportunities for savvy investors and savvy operators.
We sure hope so. Take one moment and tell us a little bit about Elliott Davis. You moved to Elliott Davis recently this spring. Talk a little bit about Elliott Davis for a second.
Ja, ich bin froh, dass ich hier bin. Elliott Davis ist eine große öffentliche Accounting-Konsultation, Audit-Taxi-Advisory-Firma. Wir sind sehr gut situiert im Core-Middle-Market bis zum Lower-Middle-Market. Das ist ein sehr nimbleres Operationsmodell, das uns ermöglicht, ein sehr astutes Core Advisor zu wachsenden Privat-Equity-Businessen zu werden. Thank you. Thank you.
Ich bin Theresa und meine Empfehlung an alle Entrepreneure, startet mit Shopify erfolgreich durch. Ich verwende Shopify schon seit dem ersten Tag und die Plattform macht mir nie Probleme. Ich habe viele Probleme, aber die Plattform ist nie eins davon. Ich habe das Gefühl, dass Shopify ihre Plattform kontinuierlich optimiert. Alles ist super einfach, integrier- und verlinkbar.
Und die Zeit und das Geld, das ich dadurch spare, kann ich anderweitig investieren. Vor allem in Wachstum.
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