1. Opportunity to Improve. The highly fragmented nature of the healthcare services industry often creates an opportunity for private equity investors to "tweak" existing business models to improve efficiencies and returns. This may mean consolidating back office operations to reduce costs, having centralized marketing to improve branding, investing in technology to improve efficiencies and clinical outcomes, and investing in training to attract and retain good employees.

2. Above Market Growth and Margins. Within the diverse healthcare services sector, many niche players enjoy above-market growth and margins.  Private equity groups are attracted to these kinds of opportunities. These subgroups include dialysis centers, acute care centers, pain management centers, compounding pharmacies, physical therapy and rehabilitation centers, radiation therapy centers, healthcare supply distributors, clinical labs, diagnostic imaging centers, ambulance services, home health services and hospice care.

3. Platform for Growth. Private equity investors are typically attracted to companies that can provide a platform for growth.  This means having a sound operating model, solid information and reporting  systems, a strong management team, and a track record of either organic growth or growth through acquisitions. Platforms in fragmented markets have tremendous opportunities for growth. In particular, physical therapy/rehab clinics/outpatient centers, ambulatory surgical centers and dialysis centers are viewed as business models that are scalable and good candidates for growth.

4. Low Risk. Although most healthcare companies possess some degree of regulatory and reimbursement risk, private equity investors gravitate towards companies that have steady, predictable cash flows and that operate in a stable reimbursement environment. Companies that are less reliant on uncertain reimbursement rates are preferred.

5. Non-Cyclical. The healthcare industry is widely viewed as being less vulnerable to economic downturns. As a result, good companies that have a track record of solid performance in good times and bad are very attractive.

6. Demographics. Private equity investors like to "swim with the tide, not against it."  In general, private equity investors see tremendous long-term opportunity to invest in companies that are expected to benefit from an aging population, particularly in the near-term. Additionally, the drive to lower the overall cost of healthcare has led many patients to seek sources of care or services. This trend is expected to continue in the near-term as healthcare reform is implemented and over 30 million newly insured patients enter the system.

If you own a healthcare services company that fits these six criteria your company may be very attractive to private equity investors.  If you are interested in exploring your options, call the MidCap Advisors office nearest you.