Morning Hubsters,
Happy New Year! John R. Fischer here with the US Wire from the New York newsroom.
Let’s kick off the first Friday of 2025 with my five-deal listicle on cardiology, a sector that attracted the likes of IK Partners, Montagu Private Equity and WindRose Health Investors in 2024.
Sticking with healthcare, I’m throwing it back to an outlook piece of mine from December on what we can expect (and not) on the regulatory horizon for dealmaking under the incoming administration and its new Federal Trade Commission chair.
We finish with insights from Apollo’s Outlook for Private Markets 2025 report on the secondary dealmaking market and what financing for transactions may look like as the market continues to normalize in the new year.
Ripe for consolidation
Private equity investment in cardiology is “in its infancy,” but the sector is fragmented and ripe for consolidation, John Eppler, principal at Lee Equity Partners, told PE Hub in 2024.
“Cardiology is in the early innings of private equity investment with a limited number of platforms created to date,” said Eppler. “Cardiology is a large market driven by a massive cardiovascular disease burden in the US. Approximately one in four deaths are related to cardiovascular disease, and there is opportunity to invest to improve that going forward.”
Several procedures and services once restricted to hospitals are now performed at outpatient clinics at lower costs and with strong patient outcomes. This has created opportunities for consolidating practices as well as in cardiac device manufacturing. I rounded up five 2024 deals that reflect PE’s growing interest in this sector. Here is one:
WindRose Health Investors, a PE firm based in New York, announced in March that it completed its acquisition of CardioOne, a provider of workflow and management technologies for independent cardiology practices.
CardioOne launched in 2023, and it is also based in New York. WindRose partnered with the company’s executive team to provide up to $100 million of capital to support its growth.
“CardioOne’s unique, physician-aligned model meets the market where it is and positions the company to take advantage of the growing desire among cardiologists to maintain their independence,” said Oliver Moses, managing partner with WindRose, in a statement.
Still skeptical
While published before Andrew Ferguson was announced as the president-elect’s choice for the FTC chair, my outlook story on the regulatory environment for healthcare dealmaking under the new administration still has relevant insights on the level of scrutiny that investors may see in 2025.
Under current chair Lina Khan, the Federal Trade Commission has scrutinized closely PE-backed healthcare deals and their impact on the quality and affordability of patient care, pursuing extensive investigations into hospital investments as well as rollup strategies that PE firms employ to consolidate smaller businesses and providers.
While less red tape is expected under the president-elect, both sides of the political aisle have expressed support for increasing scrutiny into private equity transactions, meaning that dealmakers will still face challenges. To learn more, PE Hub turned to David Schwartz, a partner at Bryan Cave Leighton Paisner (BCLP) and a former lead investigative attorney for the FTC. Here is an excerpt from that interview:
Do you expect more or less scrutiny of PE-backed healthcare dealmaking under the incoming administration?
The FTC has invested heavily in understanding and tracking private equity dealmaking in healthcare, and I do not see those investments being discarded just because of a change in administration. I am also looking to see whether the FTC, the Department of Health and Human Services or the Department of Justice does anything with their tri-partite request for information on private equity impacts on healthcare. There is a conservative strain of skepticism on private equity healthcare M&A, largely focusing on ensuring rural access to quality healthcare, which is often not as profitable as private equity firms desire.
Are there any specific regulatory challenges you expect to see?
There is substantial uncertainty for how the new FTC under the president-elect will look at private equity investments in healthcare. Neither of the current Republican commissioners, Melissa Holyoak and Andrew Ferguson, were at the agency when the FTC voted out its first PE rollup challenge, FTC v United States Anesthesia Partners, and neither have discussed private equity concerns directly at any length.
That said, both commissioners voted in favor of the FTC’s new Hart-Scott-Rodino rules, which do increase scrutiny on private equity transactions. I do not expect that part of the new HSR rules to change.
You can read more of Schwartz’s insights on this topic in the full interview here.
Robust outlook
Lower borrowing costs due to 2024 interest rate cuts may help bolster valuations and create greater incentives for managers to sell, while the desire to deploy capital may stimulate sponsors to buy, according to Apollo’s Outlook for Private Markets 2025 report.
GP-led deal volume in the PE secondary market is expected to remain robust amid decreasing interest rates. These have been the fastest type of growing PE secondary deals since 2018, accounting for almost half of all secondary transactions in 2022 and 2023, the report said. Continued innovation and slowdowns in IPOs and M&A due to high interest rates fueled the increase here, and the report’s authors credit the rapidly evolving secondary investment landscape for excess returns per unit of risk compared to other private market strategies.
“Just as with the broader secondaries market, we see the potential for GP-led deals as a function of an investment manager’s relationships with general partners, the size and flexibility of the investment platform, especially in regards to innovative capital solutions, and the deep industry expertise that accrues to large direct investors,” said the authors in the report.
Hybrid strategies are also expected to help support dealmakers in financing 2025 transactions, with high single-digit costs for debt pushing investors to look for less risky finance options that offer credit-like downside protection and equity-like upside.
Demand for hybrid approaches is plentiful, including for M&A financing and capital for growth, re-equitization of overleveraged balance sheets, owner and sponsor liquidity options and financing for public company growth initiatives, said the report. Demand is expected to continue due to companies requiring significant capital to fund growth in the years ahead, including $30 trillion to $50 trillion for energy transition, $30 trillion for power and utilities, and $15 trillion to $20 trillion in digital infrastructure.
That’s it for me. As always, if you have any questions, thoughts or want to chat, please email me at [email protected].
Nina Lindholm will be on Wire duty in Europe on Monday, while MK Flynn will write to you with the US edition.
Cheers,
John
