Stewart Gandolf speaks with Barry Freeman, Managing Director at Lincoln Worldwide, about how personal fairness companies and strategic patrons are evaluating healthcare corporations in as we speak’s market.
Whereas many organizations have grown via acquisitions, patrons are more and more centered on what’s beneath that development. How a lot is actually natural? And may or not it’s sustained?
The reply to these questions can considerably affect valuation—and finally, the success of a transaction.
Observe: The next AI-generated transcript is offered as a further useful resource for many who favor to not take heed to the podcast recording. It has been frivolously edited and reviewed for readability and accuracy.
Stewart Gandolf (Healthcare Success): Welcome once more to the Healthcare Success Podcast. We’re speaking about natural development right here on the McGuireWoods Healthcare Non-public Fairness & Finance Convention. And a shoutout to our content material companions and associates over at Levin Associates.n this podcast, we’re talking with Barry Freeman. He’s Managing Director at Lincoln Worldwide. Welcome to the podcast.
Barry Freeman (Lincoln Worldwide): Thanks, Stewart. Nice to be right here.
Stewart Gandolf (Healthcare Success): So, Barry, you’ve been round this area for some time.
Barry Freeman (Lincoln Worldwide): Some time I care to confess, however sure.
Stewart Gandolf (Healthcare Success): We have been simply speaking offline. To assist our listeners perceive, you’re an funding banker and healthcare is your sector. Inform me a bit about what you do.
Barry Freeman (Lincoln Worldwide): Positive. I’m a Managing Director with Lincoln Worldwide. I’m primarily based right here in Chicago. I’ve spent about 32 years specializing in two important sectors.
The primary is healthcare companies, notably care supply within the residence. That features hospice, expert residence nursing, private care companies, residence infusion, and actually any sort of care delivered exterior of a facility.
The second space is payer companies, which incorporates well being plan outsourcing, payer BPO, employer-sponsored advantages, third-party directors, and value containment options that help how employers fund healthcare for his or her workers.
Stewart Gandolf (Healthcare Success): Superb. So, Barry, we’ve been speaking over the past couple of days about natural development. This concept was impressed by a big personal fairness participant I met with not too long ago right here in Chicago. They emphasised how essential natural development is—not simply acquisitions.
As you concentrate on this, are you able to share examples the place natural development performed an enormous position in valuation or exit outcomes?
Barry Freeman (Lincoln Worldwide): Positive. It’s a terrific level. More and more over the past a number of years, in M&A, one of many large focal factors in due diligence has been understanding the composition of development.
A number of corporations have come to market with sturdy development pushed by acquisitions—roll-ups or personal equity-backed platforms which have aggregated development. However patrons need to disaggregate that and perceive how a lot of that development is actually natural versus acquisition-driven.
There’s an understanding that companies with a robust natural development story are inherently extra useful. Aggregated development can typically masks weaker same-store or natural efficiency. So corporations that rely totally on acquisitions and not using a sturdy natural story are sometimes discounted.
Stewart Gandolf (Healthcare Success): That is smart. For those who mix a bunch of corporations that aren’t performing properly, you simply get a much bigger firm that also isn’t performing properly.
Barry Freeman (Lincoln Worldwide): That’s proper. It’s about feeding the machine to drive development versus having one thing that may scale organically.
Natural development is extra accretive since you’re leveraging present infrastructure—your areas, your individuals, your programs. That incremental income flows extra on to the underside line.
With acquisitions, you’re paying a a number of of EBITDA to purchase that development. And also you additionally tackle integration danger—programs, tradition, operations. Natural development doesn’t include these dangers since you’re already working inside your present platform.
Stewart Gandolf (Healthcare Success): That’s actually useful. As you concentrate on subtle patrons, how a lot are they digging into natural development throughout diligence?
Barry Freeman (Lincoln Worldwide): Very a lot so. It actually behooves any vendor to have a transparent and multifaceted natural development story.
I give it some thought like concentric circles. On the middle is same-store development—getting extra out of your present areas and prospects. You then transfer outward to including new shoppers inside your present geographies. From there, it’s de novo enlargement—opening new areas in adjoining markets. After which there’s including complementary companies that you could cross-sell to your present buyer base.
All of these components collectively create a compelling natural development story.
Stewart Gandolf (Healthcare Success): I like that framework. Once we discuss to shoppers, we take into consideration comparable issues—model, advertising and marketing, affected person expertise, referrals, and cross-selling.
In areas like residence well being or senior care, development can come from shopper demand or skilled referrals. As you concentrate on that area, what levers have you ever seen work properly?
Barry Freeman (Lincoln Worldwide): We’ve seen a whole lot of change within the residence healthcare area through the years.
For those who return to the late Nineteen Nineties, the referral mannequin was quite simple. Folks would present up at hospitals with donuts or flowers to construct relationships with discharge planners.
At present, it’s rather more subtle. You’re seeing digital advertising and marketing, SEO, specialised medical applications, and payer-facing methods to develop most popular referral relationships.
That degree of sophistication creates alternative, but it surely additionally requires extra sources and experience to execute successfully.
Stewart Gandolf (Healthcare Success): We’ve seen that too. Even years in the past, smaller operators struggled to maintain up with that degree of sophistication.
Barry Freeman (Lincoln Worldwide): Precisely. And now know-how is taking it even additional.
I not too long ago spoke with a house care supplier who’s utilizing AI in three other ways. They’re utilizing AI for advertising and marketing outreach and figuring out potential shoppers. They’re utilizing it to display screen caregiver candidates throughout recruitment. And so they’re additionally utilizing it as a digital companion for sufferers—serving to scale back loneliness whereas monitoring for indicators of cognitive decline or adjustments in speech patterns.
So that you’re seeing know-how improve each operations and medical supply.
Stewart Gandolf (Healthcare Success): That’s unimaginable. It actually highlights how scale permits these sorts of investments.
Barry Freeman (Lincoln Worldwide): Precisely. Scale permits organizations to spend money on higher advertising and marketing, higher operations, and higher programs. Smaller operators simply don’t have the sources to do this on the identical degree.
Stewart Gandolf (Healthcare Success): Have you ever seen examples of corporations which have executed natural development notably properly?
Barry Freeman (Lincoln Worldwide): Sure. I labored on a house healthcare firm that grew totally organically—from about $10 million to $45 million in EBITDA over a five-year interval.
They have been very sturdy at getting into new markets and increasing domestically. They centered on constructing neighborhood relationships and educating households about their companies. In addition they had a robust recruitment engine and used know-how to determine each shoppers and caregivers.
They have been very disciplined in how they executed, they usually have been capable of scale effectively with out counting on acquisitions.
Stewart Gandolf (Healthcare Success): That’s a terrific instance.
As we wrap up, what recommendation would you give to organizations interested by development or making ready for a sale?
Barry Freeman (Lincoln Worldwide): Natural development is important, however more and more, so is having a transparent know-how technique.
AI is a significant focus in diligence as we speak. Consumers need to perceive how know-how will affect the enterprise over time and the way the corporate is making ready for that.
You don’t essentially want a totally constructed know-how platform as we speak, however you do want a method. You want to have the ability to articulate the place disruption might happen and the way you intend to deal with it.
So along with natural and inorganic development methods, having a well-defined know-how roadmap is now important.
Stewart Gandolf (Healthcare Success): I see that as properly. Conversations as we speak usually deal with tech stack and capabilities, not simply income and development.
Barry Freeman (Lincoln Worldwide): Precisely. Healthcare—particularly home-based care—is changing into more and more tech-enabled. Conferences that was once centered on operations now look extra like know-how conferences.
Stewart Gandolf (Healthcare Success): Barry, this was nice. Thanks a lot.
Barry Freeman (Lincoln Worldwide): Thanks, Stewart. I respect it.
