Hello, everyone, and thank you for tuning into
the Becker healthcare care podcast.
My name is Mariah Muhammad, and I'm thrilled
to be joined today by Ben Hernandez. Hello
Ceo and Managing Director of Sky hill group.
Ben thank you so much for joining us
today. How are you?
I'm doing well, Mariah, and thank you so
much for having me. I'm looking forward to
this.
Yes. Of course. It's very excited to talk
with you today. And with that, let's jump
right into today's conversation. So I'm sure as
we've all seen from the news. It seems
like this is the year for
transformation, either for hospitals,
universities, As, dental offices,
etcetera,
what should practice owners expect with all the
consolidation occurring right now. And what sellers do
to make sure their organization is most attractive
to buyers.
Yeah. I think overall, we think the
consolidation in the healthcare space is going to
continue.
I think a lot of this is,
due to cost and operational pressures
that somewhat drive the pressure for a
consolidation. And then it tends to be a
really nice if you're an individual owner, it
tends to be a really nice way to
have a nice exit or der risk,
and provide offer... Opportunities at times to your
team in a growing
organization.
I think if you're a potential seller,
thinking of going to market,
The thing that I would think about the
most is buyers don't like risk. So if
you think about that from the general thesis
is anything that you can do to der
risk. Your business,
I would... We would recommend I should say.
And
beyond that, that's really the reasoning behind, you
know, a lot of sellers talk about multiple
what multiple
valuation am I getting.
And generally speaking, people tend to think if
I have a larger cash flow or Eb
or multi location, multi site. That's going to
really trend to a larger multiple.
And that's generally true assuming a healthy business
But the thesis behind that is that there's
less risk with those type of businesses. You
have a larger team. You have more
sophistication and so forth.
So I would say anything you can do
to make your business healthy,
would be a big positive if you're if
you're potentially selling.
So think about year over year growth ideally
that's going to be positive. If you have
multi providers, different revenue streams, that's a positive
healthy margins,
strong processes,
so that secret sauce within your
organization. And then from a culture piece, I
would say that anything that you can do
to to minimize a team turnover
would it be extremely positive as well in
patient retention.
Yeah. Yeah. Absolutely, thank you so much for
giving us that insight. And can support organizations
compete with the middle market and large organizations
at this point?
What did they bring to the table that
larger companies do not?
Yeah. I think Mara mariah
competition overall. It it it'd be difficult. If
you're talking about competing on margin.
Larger
organizations have the ability for greater ballots buying
power. So the per unit cost is going
to go down. The
sophistication on things like technology and marketing,
are also difficult to compete with. So those
are the the headwind if you will, if
you hear a smaller
organization
But I do think that there's... There are
other ways to compete. So smaller
organizations can still scale. They can still centralize.
So you have those strategies available to you.
I think the other thing that smaller
organizations have, is they're able to pivot faster.
Right? And The other thing would be mentorship
abilities. If you're the actual business owner, you
know, there's the same we use nobody cares
about your baby like you do. If you're
the actual owner of the business,
you know, we see the ability for really
strong,
mentorship, And sometimes
providers don't want to work for extremely large...
Organization. So you have that operational agility,
And then from a partnership perspective, with other
with other providers, you also have the ability
to have different
partnership paths. So you can kinda structure deals
differently.
If you're looking at recruiting. Those are some
ways that we see
smaller
organizations able to compete with the larger ones.
Yeah. Yeah. That that completely makes sense. And
how have interest rates impacted
valuations?
If you could talk a little bit about
that. And what did multiples on Eb look
like before
now and impossible compression over the next 5
years.
Yeah. I think, you know, interest rates
overall, I would say I've had an effect,
maybe not as much on valuations, but certainly
in the number of deals getting done.
We're seeing fewer deals getting done certainly in
20 23, and maybe the end of touch
20 22.
You know, we're we're now in 24. Right?
So we're looking at election years. We were
supposed to have interest rate 20 drops
that that may not be happening or at
least not as many as we thought. So
there are few fewer deals getting done. Values
have held
in most healthcare subs sectors anyway. I would
say any values
that have held have been in those subs
sectors that, have been resistant
historically
to economic pressures. Right? Not necessarily full foolproof,
but at least resistant
because financial sponsors have to deploy capital somewhere.
And a lot of health care fortunately
is does pretty well in a downturn in
the economy.
So values have held, deal... They've gotten pick
year though on what deals they have bought.
And then... So know, in other subs sectors,
like, for example, in dentistry, you're seeing shifts
to more of the specialty where values have
absolutely helped. You held.
But we do expect, we do talk to
sponsors,
and their thinking is that in the latter
part of of 24,
you'll start seeing some uptick even in deal
activity. Because right now some buyers have kind
of put pencils down
on some deals of
Got it. Got it. And and then before
I let you go, the last time I
really wanted to ask you is how can
a owner perform due diligence on private equity?
So support organization buyer or before transaction?
Yeah. So this part's is so important. I
think a lot of sellers have the general
understanding that
if you're thinking of selling your
organization, the buyer, whether it's a financial sponsor
strategic is going to do deep diligence on
you. Right? They're going to look through all
of your drawers and know everything about you.
1 thing that sometimes forgotten is that you
as a seller have the ability to choose
your partner, your and a lot of folks
forget that because they get phone calls, they
get unsolicited offers,
and so they think that there's 1 buyer
out there. If I'm thinking of selling my
business. The thing that we say is this
is your blood sweat and tears for most
of us, it might be the only time
that we sell our business.
So we call it kind of a magic
wand, if you will, whether it's a financial
sponsor or strategic.
I would go ahead and look at... How
long has this fund been around, for example,
do they have a health focus,
depending on your health care subs sector,
have they done other
transactions in this subs sector or something tangent
gentle to it. So retail health, whatever, whatever
it may be
And then 1 of historical returns been. A
lot of, you know, mid to market private
equity groups, so we'll actually let you know
this is what the historical returns have been
on our platform. Forms on average.
So that gives you a bit of an
idea. And then beyond that, as you become
more interested in deeper
conversations,
I would suggest that you get a list
of other sellers similar to you that have
sold to the group and call them. And
then beyond that, I would go ahead and
get additional names off that list because they'll
give you their top 5 or 10 if
you will. So I would look at others
and call them as well. III think that's
a really good way to 1,
as best you can ensure that you're partnering
potentially with the right group with the right
Sponsors as well. And then 2 that, you
know, in these healthcare
transactions, most of them have a significant amount
of rollover equity So 2
is the equity that I'm rolling
is the probability decent that I'll get a
good return on that.
Yeah. Thank you so much for sharing that
insight and for those final thoughts.
And also for sharing your time and insights
with us today Ben.
As well as Scott group sponsoring today's episode.
So our listeners. Thank you for joining us,
and please make sure to check out other
Becker podcast podcasts. Have a wonderful rest of
your day.
Thank you for having me mariah.