For the last six months Oaklyn Consulting has seen an uptick in healthcare activity. We’ve worked with providers, payors, and healthcare services and technology companies on engagements of varying size and scope. However, our increase in healthcare business seems to run contrary to the market as a whole.
In recent conversations with healthcare companies, professional services providers and investment funds, we’ve heard the consistent comment that transactions in healthcare over the past six months have noticeably declined. Interestingly, only about 50% of the funds we’ve met with agree with this trend, but we believe this is still substantial enough to confirm a market movement.
While there are several reasons why healthcare deal flow could be declining, including fear of a market correction and investors’ shared push toward investing in higher quality assets, there’s only one plausible explanation for this abrupt market adjustment in recent months: companies are concerned about the implications of the proposed changes in healthcare policy.
This should come as no surprise. In fact, if you look back to periods immediately following an election in which the prevailing candidate campaigned on fundamentally changing a regulated industry, you’ll find a consistent occurrence. Participants in that market tend to pull back, become more conservative, and put strategic plans on hold while they wait to see what changes actually transpire.
It seems counter-intuitive, and yes, there are those companies that listen to political commentary and are compelled to seek a quick transaction in fear of what’s coming. But the most common response has been to freeze.
This is an effect which in most cases is unwarranted – especially in the healthcare industry today. The realities are these: the healthcare industry is, and for the foreseeable future will be, the largest segment of our economy; the need for high quality care and technologies and services that make healthcare more efficient, affordable, and improve outcomes will never go away; and a President’s bark will always be louder than Congress’s bite.
Of course any change in healthcare legislation will bring its own set of challenges, and for some companies, the writing is on the wall. But it is our view that almost every fundamentally strong healthcare company today will remain fundamentally strong regardless of how the dust settles in DC, and likewise, the correct strategic plan for a business six months ago is likely still the best course of action today.
Posted on April 20, 2017
by Chris Wright