Becker Private Equity & Business Podcast
Private Equity in Transition: Market Shifts, Growth Strategies & Fiscal Headwinds with Matt Wolf of Elliott Davis 5-27-25
Tue, 27 May 2025
In this episode, Matt Wolf, Valuation Leader and Healthcare Senior Analyst at Elliott Davis, unpacks how higher interest rates, global financial uncertainty, and a shift away from traditional add-on acquisitions are reshaping private equity strategy, especially in the healthcare and lower middle markets.
Chapter 1: What is the current state of private equity and healthcare?
This is Scott Becker with the Becker Private Equity and Business Podcast. Today, we're visiting with Matt Wolfe. Matt is a brilliant leader at Elliott Davis. He watches the healthcare area closely and just a really gifted person. Matt, what are you watching currently? What's going on in the private equity and healthcare space? What are you watching?
Chapter 2: How are interest rates affecting private equity strategies?
A lot, I guess. I'm not even sure exactly where to start. Like many people, I started to watch treasury auctions and pay attention to those. Just, I guess, overall, the level of
uncertainty in global financial markets as bond investors assess in various governments, including the US's ability to pay for their obligations and what that's doing to interest rates and what that's doing to cost of capital. And I think for private equity, what is really interesting, and I think we'll have some interesting deal flow implications is
You know, certainly interest rates will remain higher for longer, which I don't think is news to many. But, you know, as we look into the actual what that means for the operation of these strategies, you know, I talk to more and more sponsors who are are doing the math, doing the analysis and saying, you know, the the the add on game. is less appealing.
Certainly we'll do add-ons when it makes sense, maybe for a capability rather than a geography or something, but we're looking for de novo growth. And I'm really watching what that means on the lower middle market as the demand for some of these businesses, especially even founder-owned businesses, reduces. And that will continue to bring multiples down
And I think that'll create challenges for folks looking to exit in the middle market, but particularly in the lower middle market, a lot of founder-owned businesses, older Gen X, baby boomers looking to retire from the business they built over 40 years, not getting the multiple they were looking to get, might have implications on downstream healthcare demographic trends and ability to spend for senior care, things like that.
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Chapter 3: What challenges are impacting add-on acquisitions?
this global going from 100,000 feet down to 10,000 feet, but really looking at the interplay of the global financial uncertainty, what that means for rates in the U.S., and how that's playing out in real time as sponsors evaluate add-on acquisitions versus de novo.
And this is going to have effects on the wealth transfer, the so-called silver tsunami in the U.S., and it's really – there's a lot going on, and it's a very – Very interesting time, I guess, to be a private equity sponsor trying to navigate all of this.
Chapter 4: How is organic growth becoming more valuable?
Chapter 5: What does the future hold for lower middle market businesses?
And I think that'll create challenges for folks looking to exit in the middle market, but particularly in the lower middle market, a lot of founder-owned businesses, older Gen X, baby boomers looking to retire from the business they built over 40 years, not getting the multiple they were looking to get, might have implications on downstream healthcare demographic trends and ability to spend for senior care, things like that.
this global going from 100,000 feet down to 10,000 feet, but really looking at the interplay of the global financial uncertainty, what that means for rates in the U.S., and how that's playing out in real time as sponsors evaluate add-on acquisitions versus de novo.
Chapter 6: How does global financial uncertainty influence private equity?
And this is going to have effects on the wealth transfer, the so-called silver tsunami in the U.S., and it's really – there's a lot going on, and it's a very – Very interesting time, I guess, to be a private equity sponsor trying to navigate all of this.
Right. I mean, there's so many things there that you just started to unpack, and they're fascinating. One is that the era of add-ons, what I've seen over the last several years is add-ons have been just more and more challenging for more and more investors, private equity funds, as interest rates have been up.
Yes, people have been having a hard time making the margins on some of these add-ons and so forth. It's led, of course, back to a premium on organic growth.
And it's also led to a premium on companies that have been able to deliver organic growth because they look pretty good if they're not in all this debt where so much of this debt was added on without having a consequent success with the add-on. So I think your point on, of course, the era of add-ons will come back.
But in the current moment, it does seem that there's a bit of softness on people driving everything towards add-ons for sure.
Absolutely. And we're seeing that in the way that new platforms are financed, right? I mean, lower leverage, bigger equity checks, not only because of more restrictive debt covenants, but a de novo growth strategy almost by definition is Except for some industries, right? Certain industries, certain sectors, de novo growth can still require huge capital up front.
But for many industries, it really doesn't, right? It's a slower play of capital over time. You don't need to lever up as much. So we're seeing that sort of debt discipline manifest itself.
there too so it's changing the way i'm talking to bankers the way they look at deals the way they underwrite deals the way they think about deals it really is a a fundamental change and then you know everybody that's sort of playing down from the big question of you know how sustainable is a a six percent of gdp fiscal deficit in the us and what does that mean going forward not not just for this whole period but for the next fund and the fund after that what what does that mean as we look down
down 5, 10, 20 years in the future.
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