What Makes for a Strong M&A Deal in Healthcare?

Ashley Kent (00:01): Hello, I am Ashley Kent with Clearstart and GrowthDx, joined today by Lindsey Reighard I'm super excited for this conversation today. I met Lindsey about a few months ago and at a lovely happy hour, and we became very fast friends very quickly. And so looking forward to spending the next 30 minutes with her. and you know, other than just being a wonderful

Ashley Kent (00:26): Friend throughout that process. she's incredibly impressive in her background. she's actually the partner in charge at McDermott's Texas Corporate and Transactional Practice Group, spending her day-to-day working with private equity sponsors, portfolio companies, and healthcare businesses through acquisitions, investments, joint ventures, recapitalizations, exits. What does she not do?

Ashley Kent (00:51): I think she's gonna have an incredibly interesting perspective as we dive into the healthcare side of things, but she obviously her experience spans beyond healthcare. so there's a lot for us to dive in today. So Lindsey, welcome.

Lindsey Reighard (01:03): Thank you. I'm happy to be here and I appreciate the kind introduction.

Ashley Kent (01:08): Of course, of course. Well, I don't think anyone can give a better introduction than the person who has lived it themselves. so I wanna allow you to just give us a little bit more background and detail on, you know, your experience, your focus, where you love to spend your time and what's really interesting to you right now.

Lindsey Reighard (01:27): Sure, well, like you mentioned, my practice focuses primarily on private equity and MA transactions. I do a lot of healthcare work, but I also have work in the manufacturing, technology, other industries, which I think gives me a nice form of comparison of how the healthcare transactional structure and considerations are different. I also do a wide range of deals. I'm in the middle market space, but I'll do small

Lindsey Reighard (01:56): Add-on acquisitions that are five million and up, or and I'll do billion dollar exits. And so it's all across the board. and I've seen a lot of different types of healthcare regulatory issues. I also work a lot with portfolio companies just as their day-to-day outside general counsel. And so with healthcare companies specifically, a very wide range of issues can pop up, whether from a regulatory perspective, employees,

Lindsey Reighard (02:23): payer contracts, just the whole gamut. I see everything. And so I would say I know a little about a lot of different things, but you know, my goal is to direct the client to the right place and get them the right advice, even if it doesn't come from me. and so what really makes it most rewarding too I think is just the management teams at the healthcare companies. I really enjoy

Lindsey Reighard (02:46): My portfolio company work with them, getting to know them, seeing the work that they do, the improvements that are made in the industry. I find that very rewarding.

Ashley Kent (02:56): That is awesome. I mean, you know you say you know a little bit about a lot, but I think you know a bit of a lot over here. I mean,

Lindsey Reighard (03:02): Yeah.

Ashley Kent (03:02): if you're operating both just on the transactional side but also within the day-to-day

Ashley Kent (03:09): Mentioned this to you before. My husband's an attorney and he'll always like, I'm not that type of attorney. but sounds like you help across the board, which is incredibly helpful as people are navigating because it's you know, there's a lot that happens post-sale and post-acquisition that they have to navigate throughout that. and you mentioned, you know, you work across multiple different industries, which I do think gives you a really interesting comparison point when we talk about healthcare. And you know, let's talk about the healthcare deals specifically. We'll just dive right in. if

Lindsey Reighard (03:36): Yeah.

Ashley Kent (03:37): we're looking at

Ashley Kent (03:37): at a healthcare transaction versus maybe a deal in another industry, what do you feel like really makes healthcare very different and how do you approach this differently?

Lindsey Reighard (03:48): Healthcare is just more complicated. It is than other industries. It's regulatory consideration. It impacts deal structure, timing, deal complexity, deal certainty. The type of diligence issues that come up are frequently more serious, more impact on economics or long term growth. And so you need a little bit more time. You need a bigger team when we kick off the deal process for a healthcare.

Lindsey Reighard (04:16): transaction.

Ashley Kent (04:19): Well, I think that would also to your point of just having that healthcare experience is so critical when you're navigating these deals to know, you know, what are the common pitfalls, what are you needing to look out for as you're starting to navigate that? How do you typically form your deal teams when you're, you know, depending on maybe even different types

Lindsey Reighard (04:35): I mean different

Ashley Kent (04:36): of I mean, healthcare's so broad. So, you know, you got your services companies, you've got your tech, and how does that even change beyond, you know, various industries within healthcare specifically?

Lindsey Reighard (04:45): Right. So on our healthcare team, we may have people from five different areas. We have fraud and anti-kickback specialists, we have HIPAA and privacy experts, we have people who specifically focus on the regulatory filings for healthcare. And then we also have if it's pharmacy, we have experts in that space or payor relationships, reimbursement models. So we have somebody that does each little aspect of that.

Lindsey Reighard (05:11): And so it's kind of knowing luckily I've been at McDermott a long time and so I know who goes where, but it's important to get them involved and early. I'd say, particularly in the healthcare space, a lot of times the client will negotiate the letter of intent before coming to us. And that's not always advisable. There are certain things you're not allowed to do from a healthcare perspective that we'd rather not see in the LOI. for example, earnouts may or may not be permitted. And so

Lindsey Reighard (05:40): We don't even wanna see it if it's not allowed, like having an earnout paid based on patient referrals or something we don't wanna see in the LOI. And so things like that, it's better from a structuring standpoint and a healthcare deal that we look at it, for example. So little things like that, even from the beginning of the deal, can impact the deal strategy going forward.

Ashley Kent (06:00): I'm curious too from the buyer perspective and I guess I'll start first by asking, you know, where do you typically find yourself? Are you on the buy or sell side typically or is it, you know, fifty-fifty split?

Lindsey Reighard (06:11): Usually on the buy side just because we represent private equity firms and so they're acquiring the initial platform acquisition and then usually a handful of other ones even per year if they're doing small add-on acquisitions and then the big one at exit.

Ashley Kent (06:29): Got it. you know, you as you start to develop these relationships with the private equity firms. Obviously they're trying to get the deal done, but you know, at what point do they start should they maybe start to bring you guys into the process so that they do not get too far down the road and we get the, you know, infamous, we got down to the finish line and the deal died. Like no one loves to hear that. how do

Lindsey Reighard (06:47): Uh-huh.

Ashley Kent (06:48): we start to avoid that by maybe bringing you guys into the conversation sooner? without some dead deals there at the final hour.

Lindsey Reighard (06:54): Yes, there are some things in healthcare legal diligence that can impact the way you structure a deal, particularly if there's compliance issues or some owners in the business that may not pass regulatory approval. I think the jurisdiction also matters. California, for example, can be tricky. And so it's just better at least to get legal involved early and so we can figure out deal structure and set expectations regarding timing and how long the approvals will take. And then

Lindsey Reighard (07:22): financial diligence can take over from there. and but legal again, it there can be some significant issues. So it's always good to have us sweep through the virtual data room and make sure there's nothing a red flag that will jump out. I think also it's important to coordinate early on with the legal advisors and also the non legal advisors that a team might have. Like there's usually someone who's looking

Lindsey Reighard (07:49): you know, at sourcing and coding, for example, that's not legal as a third party advisor or benefits and it just can help make it a lot easier on the selling founder or management team if we coordinate together at the beginning so we're not being duplicative and we all have access to the same information.

Ashley Kent (08:08): Flipping it over to the operator's perspective, I know you're not doing as much on the sell side, but you know

Ashley Kent (08:14): you have the perspective of what

Ashley Kent (08:16): specifically private equity is looking for in a company that they are looking to acquire, whether it's from a platform perspective, add-on. if you were to give some advice to operators that are starting to toy with the idea of eventually you know going to market, what would you start to tell them that they need to be investing in from a process perspective much earlier? Is it from a

Ashley Kent (08:38): Financial, operational, what are the things

Lindsey Reighard (08:40): is

Ashley Kent (08:41): that your partners are looking for in an attractive deal that someone could start preparing for much sooner?

Lindsey Reighard (08:47): Engaging a banker and legal six months to a year out at least, and at the beginning they can at least give you a getting ready for sale checklist. Here are all the diligence materials, contracts, things you'll need to do to get ready. On the legal side, just to make sure your governance materials are cleaned up, also a general compliance review in-house to make sure your licenses are up to date.

Lindsey Reighard (09:15): That you have policies and procedures in place. Make sure you have good insurance, cyber insurance, HIPAA data privacy policies, it's things like that that tend to come up right before sale that you can't really prevent, but you can have safeguards in that you wanna make sure that you have in place. Also, healthcare is an area where the laws do regularly change and there are certain trends. And so you wanna make sure that you have a good story there, like what's your plan?

Lindsey Reighard (09:44): new healthcare law is coming down the pipe. How are you gonna react to that? Of course, AI, which we can't escape, is gonna come up in diligence. Even if you haven't implemented it yet, what are your plans? How is your business going to be changed by this? These are all questions buyers will ask. And so it's nice to have everything in order and a good compelling story for your business and where it's gonna look in three to five years, despite this ever changing market.

Ashley Kent (10:13): One hundred percent. Well, and I think you also hear too, you know, in particular y we we talk about all the time the bad rap of private equity and healthcare and you know, all those things. But I think there's a lot that, you know, operators can prepare themselves for and start to make some earlier decisions on what they want in a partner. and who they would want to transact with, whether it's around ownership or contracts, equity, rollover, whatever, you know, that's gonna look like, starting to make some of those decisions earlier. And so it's like I'm curious from the perspective of

Ashley Kent (10:42): Like there's the everything you just

Lindsey Reighard (10:44): Yeah.

Ashley Kent (10:44): listed there that's like having the house in order. Now it's starting to make some decisions around what do you actually want out of a partnership? And what are kind of those these aren't soft, but these are some decisions that they should maybe make ahead of time as they're evaluating partners because it's not standard across the board. And so having a stance on that could be helpful as you're starting to determine you get a say in who you're selling to. What would some of those things look like that you would advise operators to be thinking about maybe a little bit earlier than letting it, you know, just force fit.

Ashley Kent (11:12): to whatever the buyer the standard.

Lindsey Reighard (11:13): well I think

Lindsey Reighard (11:16): an important consideration is where do you see your involvement in the company after the sale? Do you just wanna cash out and go off into the sunset? That's great, that's gonna shape the type of buyer you're looking for, then you're really just looking for value. Or do you wanna stay in the business in a rollover capacity and the sort of

Lindsey Reighard (11:37): rights that you'll have will vary significantly whether you have a 10% rollover or 40% rollover. And so your involvement, whether you have a board seat, whether you have veto rights, all of those things will matter based on how much you have going forward. And that too, it's also important to get a sense of the private equity firm in the industry.

Lindsey Reighard (11:55): Because there are different types of private equity firms. We have lots of them. You know, some are more hands-off approach, more high-level, let's do quarterly board meetings, otherwise, I'm not gonna get in your way. And some are a lot more hands-on. And so I think based on the particular founder and what their level of involvement is, that's important. I think you also wanna see if they have experience in the healthcare industry. There are certain sponsors that do a lot of healthcare work.

Lindsey Reighard (12:23): And then there are other sponsors that may only have one or two portfolio companies in that space. So the level of involvement and the expectations varies too there. So that's important. I think another consideration that's important when selling is the management team. A lot of times the founder will care about the business, of course, but also really cares about its senior executives and the management team. And private equity does sometimes come in and clean shop

Lindsey Reighard (12:50): And so how important are your employees? Is it a private equity firm that wants to work with who you have, or do they want to replace it with all of their own people? So I think that's also important. And and those considerations can vary based on the particular founder and goals and where they're at in their career, family considerations, a lot of different factors.

Ashley Kent (13:11): 100%. I think it's just good call outs because I think it's one of those things that can, you know, sneak up on you when you start the process that you're like, they're not all the same. No, they're so different

Lindsey Reighard (13:18): Right. Yeah.

Ashley Kent (13:19): across the board. And it's really it's dating, you know, at that point too, to kind of figure out exactly like what do you want your life to look like, what do you value, what's important to you. And I think making some of those decisions ahead of time can really dictate the the path and direction that you go forward.

Lindsey Reighard (13:33): Right.

Ashley Kent (13:34): And

Ashley Kent (13:35): With these companies that, you've given some really good tips, advice, ways to kind of make your life and a lot of people's lives easier

Lindsey Reighard (13:41): Yeah.

Ashley Kent (13:42): throughout the diligence process, throughout the entire transaction, do you see that these companies that say they have, spent the year to two years making sure that they have all of this buttoned up, do you see those usually get a better outcome at the end of the day, higher valuation, whatever may it may be, or does it just make the process less painful in general? and we'll we'll surface these things no matter what.

Lindsey Reighard (14:03): I

Lindsey Reighard (14:03): think it makes the process less painful.

Ashley Kent (14:04): Throughout the process.

Lindsey Reighard (14:06): Trust is huge both in the negotiation process and then also for the post closing going forward relationship. And so if management and the buyer have a good relationship from the get go and open communication and similar goals, it will go a lot easier and negotiations will be faster, legal spend will be less. I think it just starts off.

Lindsey Reighard (14:29): on a better foot. and then of course, if you don't address a lot of issues in the beginning, then you're gonna butt heads later. And we do run into it. You know, some some CEOs or founders have an easier time when somebody comes and takes control of their business than others. And I I think you can tell from pretty early on which sort of management that will fall under. And so it's really important to

Lindsey Reighard (14:56): set the right tone during the negotiations, on the buy side at least.

Ashley Kent (15:02): You you mentioned this before too, and I think this is something that people don't quite understand as they're, you know, thinking through what a sale could actually look like. But if you know, how should a founder think about cash at close versus rollover equity? and continuing to own a part of the business? 'Cause you know, you get kind of that they'll they'll put the carrot out there of the second bite of the apple, they wanna keep you, you know, engaged and involved, but you know, what what do people not understand about that as they're going into a transaction that they should?

Lindsey Reighard (15:29): Well well, like

Lindsey Reighard (15:30): I mentioned, if you're not rolling a lot, you're just not it's market, you're not gonna have a lot of rights. And then I also think there are rights on paper and then there's actual day to day deference trust that somebody may have. So just because on paper they don't have a role of a right to block a lot of decisions, they're the ones running the business and they have all of or as a founder, they have all of this history with the business.

Lindsey Reighard (15:57): The private equity firm will defer to that. It's they want to keep their management team happy. Even if they don't have a board seat, the CEO is probably gonna be at the board meetings. They will have a say. And so I think sometimes people do actually get really hung up on the legal part of it. and of course we it's important if things go badly, which they rarely do, but that's one thing to consider.

Lindsey Reighard (16:23): And then I mean rollover equity, you have to remember too, like there's huge upside potential there. And there's a lot of good that come come out of it. You just have to learn to sort of step back and cite clear expectations from day one about what's the preferred, you know, structure control will be going forward, frequency of communications, meetings. It all it does vary based on the team.

Ashley Kent (16:48): Yeah. One hundred percent. Well and I think it's specifically in healthcare too, when it comes to maintaining the providers within the group, whatever it may be, like that's I mean that's such a strategic move on the private equities, you know.

Ashley Kent (17:00): perspective where you know that is the value, right? Typically that they're purchasing, it's gonna be in those panels and that these people hold. And so that's gonna completely once again change that valuation of what this looks like. Does someone just want to exit, retire, they're done? and they, you know, but how sticky is that panel within the practice itself versus

Lindsey Reighard (17:17): Mm-hmm.

Ashley Kent (17:18): the person? and how that can kind of change. And I'm curious from the private equity group's perspectives, as they're evaluating deals, how much are they looking at that for, you know, valuation?

Ashley Kent (17:27): if something is looking more attractive versus something else if someone is looking to definitely stay. And how do they work that into the contract terms too to make sure that you know they're sticking around considering that is a huge part of the value of the deal.

Lindsey Reighard (17:40): Right.

Lindsey Reighard (17:40): I mean employment considerations are really key when it comes to that. If you know, somebody has relationships that are key to the business. And so we see a lot of employment agreements, retention agreements, incentive equity is always important. rollover equity is another way. They may not be rolling a lot, but it's nice to have some sort of sense of alignment. you know, we do see, even though I mentioned earnouts can be

Lindsey Reighard (18:06): difficult. There are ways to structure them and so that can help with valuation. you just can't tie it to patient referrals or anything else that would trigger the anti-kickback. But you know, we do see it at exit in the waterfall as you know, a form of how the business has done. And so that's a way that you can change valuation without having somebody roll over and remain part of the business while still sort of having some protection on valuation if there's uncertainty about the growth. so that's

Lindsey Reighard (18:33): some ways I've seen handle it too. Sometimes we'll do F rows if there's a particular issue we're concerned about or that's tied I've seen it tied to contract renewals in healthcare 'cause some of those can be very significant. so there's there's ways you can structure it. But again, it goes back to like these are the issues you have to identify in the beginning because it's hard to get through the negotiations and throw a holdback or escrow because you saw something in a contract that's been sitting there, you know, in the

Lindsey Reighard (19:00): data room for months, but legal just got involved.

Ashley Kent (19:05): 100%. Well, we've heard a lot of kind of, you know, getting prepared for the deal. You know, say post deal, you said you talk about you know you're still helping companies throughout, you know, their life cycle and what that's looked like. And in healthcare specifically, we watch a lot of businesses grow through acquisition. hence where what we've been talking about about this, but whether it's a platform, doing add-ons, you know, but acquiring 10 companies doesn't necessarily mean you've built one company. We see that all the time in a very disjointed, you know, healthcare ecosystem. So I'm curious from your perspective, what

Ashley Kent (19:35): What separates a good buy and build strategy from simply just being a collection of assets?

Lindsey Reighard (19:41): Think the management

Lindsey Reighard (19:42): team is important. If you need a good leadership team in place that sort of oversees all of the transitions and can help bring everything together and make sure it continues to grow. If things change a lot, it's really hard for the business to get momentum if they're continually having people come and go. I do see a lot of people in terms of growing. I might add a corporate business development role internally just to help.

Lindsey Reighard (20:08): deal with the add-on acquisition burden because it does get a little overwhelming when people do continuous ones over and over. The integration is really hard and underestimated. And a lot of times it is important to use we we'll have the law firm identify all of these issues when they buy the company and then they're not fixed because the business team doesn't have capacity to fix it. And then you go to sell it and they're all still there, but worse. And so just having somebody who's able to handle all that

Lindsey Reighard (20:37): I think people never have enough HR leadership capacity because with all the employees integrating, they come over on different benefit plans. There's all these deadlines there. it's that's a big issue I see with integration. and employees in the healthcare setting too, it's just really hard. Those honestly the biggest issues I see on the legal side come up related to employee issues. Employees doing things they shouldn't do, employees not being licensed,

Lindsey Reighard (21:07): lawsuits relating to employees, there's a whole gamut of things there. So always recommend staying on top of that area.

Ashley Kent (21:16): Yeah, I've been with companies literally from zero.

Ashley Kent (21:19): No clinics at all to, you know, there's this interesting growth point between that like zero to ten, I kind of feel like it is.

Lindsey Reighard (21:24): You like it?

Ashley Kent (21:25): And then there's another jump that happens, you know, from like the ten to like then they get like the twenty-five-ish range within there. And then you start to see where these add-ons become, you know, pretty healthy afterwards.

Lindsey Reighard (21:35): Mm-hmm.

Ashley Kent (21:36): and you know, I've been with companies from like I said, zero to then like up to eighty-five, all within two years. And it's just so interesting to walk along that path. with someone, it was some of these were the first time I had gone through.

Ashley Kent (21:47): that experience and I was on the marketing side, but so much of it is so operational. And I talk about, you know, our contribution was marketing operations and that integration is so key in making some of these decisions on the front end of, you know, are you going to be a, you know, a house of brands? Are you is it an MSO where they're just sitting behind the scenes and we're maintaining the brand of the current company? And it's amazing how even the marketing and brand strategy of what you're doing within here then impacts the operational strategies of what you're doing

Lindsey Reighard (22:12): Mm-hmm.

Ashley Kent (22:14): and can completely change that.

Ashley Kent (22:15): And I'm curious from the, have you seen certain inflection points where you have to start to think about this a little bit differently, whether it's at zero to 10, 10 to 25, 25 and beyond, that you need to be building something a little bit different? and like what kind of gates have you seen that change?

Lindsey Reighard (22:31): Well,

Lindsey Reighard (22:31): one thing too is number of locations. How many clinics do you have? Or locations, where are you operating? Because every time you add or how many entities do you have? How is your structure spread out? Because at some point it just gets too much. You need sort of a cohesive structure. and I it also does depend too on the side. You could have a small two million dollar acquisition that doesn't really move the needle, but then

Lindsey Reighard (22:59): You could have a fifty million dollar acquisition that does really change things. Also, you know, the structure and new contracts that come in may have different requirements. so I I think it takes unfortunately a regular review of how it changes the business and how you can accommodate. I think there are some things that you can transition more to the private equity firm and advisors to make it easier. A lot of private equity firms do have.

Lindsey Reighard (23:27): Bigger accountants, bigger law firms, more specialized advisors or certain ways that they have had experience in creating efficiencies, they do this all the time. And so they step in a lot to sort of manage that and help that process along. But again, going back to why it's important for them to work well and have open communication and

Ashley Kent (23:48): Yeah, well, and you you know, you say not all deals are the same, right? And the value of those aren't all the same. So I'm curious as a sponsor's evaluating an add-on, what makes something strategically additive beyond maybe even just more revenue or EBITDA as they're considering options that are out there?

Lindsey Reighard (24:06): it's a area of the country that they don't have, they're not they don't have patients there yet or they want to, or they already have an office there and they want to grow or just, you know, haven't been able to get into that area. sometimes we just see like good relationships there. They know people in the industry and they know what they do and they think they would be a good partner or offer a service that would be complimentary. so I think it

Lindsey Reighard (24:34): It kinda changes based on the particular opportunities that come up. I think you always have to sort of keep an open mind and use the relationships that you have, which is why like we met at a conference. These things are great just to keep the conversation going and pick up on new industry trends and you know, keep an ear out for people who are gonna be up for sale and that might be a good fit.

Ashley Kent (24:56): Very cool. Well, we've talked a lot about, you know, buying selling companies, but I know you also work on a lot of joint ventures and other partnership structures. So from your perspective, you know, when is the right growth strategy actually not to acquire another company and maybe looking at alternatives?

Lindsey Reighard (25:12): Sometimes there are just

Lindsey Reighard (25:13): regul regulatory hurdles, jurisdictional hurdles, time, money, and risk that you don't want to take on, and somebody else has already taken that on. And so you see that you may have things that are complementary or they may provide a service that may benefit you, but you don't want to put the time, money, resources into that. But you think that there's another commercial solution that would be attractive and create value. I see a lot of these

Lindsey Reighard (25:41): Joint ventures come up when there's already prior relationships there, like there may be some sort of contractual relationship that they then talk about expanding it to another area, or there may be a pool of people in a similar industry who get together and talk about it and see this opportunity. so we see it it tends to be more organic than something that comes up on the sponsor side. It's I see it generated a lot more by management in their context and

Lindsey Reighard (26:08): knowledge of the business and how they can grow.

Ashley Kent (26:13): see anything that makes a joint venture more compelling in healthcare than other industries, or is it truly coming back to just those relationships that they may previously have and it just makes more sense specifically for that company?

Lindsey Reighard (26:24): I mean relationships are hugely important in anything,

Lindsey Reighard (26:27): but particularly joint ventures because we spend a lot of time negotiate them because a lot they're hard to break apart and they can fail and there are a lot of things that are heavily reliant on the nature of the business and how the the parties can work together. And so I think healthcare is just a lot of people have similar

Lindsey Reighard (26:46): Goals and missions and there's just so many aspects of it that you can't get into everything. It's impossible to be in every industry. And so it does sort of present a unique opportunity there where you might not have as many chances for that in other industries. but again, healthcare also is just very people reliant. And so I think it's important that the parties have that relationship as a foundation.

Ashley Kent (27:12): Yeah, that's always, you know, everyone has a why behind they got started in healthcare. So that

Lindsey Reighard (27:15): Yeah.

Ashley Kent (27:16): makes a ton of sense for where this could come into play at certain points or another.

Ashley Kent (27:21): And go going back though to, you know, on, you know, after private equity comes in and you know, we're talking about the operational landscape within there, how does the way a company make decisions change once you have a sponsor and board sitting alongside management? I think healthcare is one of the most known industries that you have providers running businesses, and it's the whole thesis that many of these private equity firms have is that you know, you you got in this to deliver care, not to run a business, let us handle that.

Ashley Kent (27:51): for you, but how does that kind of change afterwards? and what is that shift like for someone who you know maybe you know they got to this point because they were such an incredible provider. They grew a lot of roots in the communities and maybe beyond. But now it's being looked

Lindsey Reighard (28:02): But it worked out pretty good.

Ashley Kent (28:06): at truly from a business perspective. And what how does that change?

Lindsey Reighard (28:08): Yes. We always

Lindsey Reighard (28:10): suggest doing what we call an authority matrix where it's very clear here's what you have to go to the sponsor for, here's what you have to go to the board for, and here's what you can do on your own. And sometimes it's just general, sometimes it's dollar related, but it just helps provide a guide because otherwise people aren't sure and they don't know when they need approval and when they don't. So either they don't get approval and they should, or they

Lindsey Reighard (28:35): Bother the sponsor by going to them for everything. And I think for the sponsors, they're really not supposed to be involved in day-to-day. And if there is a good management team, they should be able to run their business. and the sponsor can focus on more high-level or major business decisions. we do see a lot of sponsors do MA, for example, they're a lot more involved in the add-on acquisitions, but the day-to-day really should.

Lindsey Reighard (29:01): be management. And again, I think when the sponsor comes in, just talking about how that's gonna work is very important.

Ashley Kent (29:10): Clear expectations

Lindsey Reighard (29:10): Yeah.

Ashley Kent (29:11): always solves a multitude of issues as you start to establish

Lindsey Reighard (29:14): Yeah, it's

Ashley Kent (29:16): those. And it all goes back to also too, I think what we were originally saying of what type of sponsor do you want to work with? Do you want someone who's going to be involved in the day-to-day? Do

Lindsey Reighard (29:25): Mm-hmm.

Ashley Kent (29:25): you want someone who's going to be sitting alongside you? I can tell you as a founder of a business, it sounds pretty nice to have someone go run the business part of me so I can do the part that I really enjoy,

Lindsey Reighard (29:33): Right.

Ashley Kent (29:34): you know, on a day-to-day. So, you know, I think that once again it just all goes back to setting those expectations and really understanding.

Ashley Kent (29:40): understanding who you're getting into business with. And then being very clear to that point of what do you still have autonomy to run? And what do you not want the autonomy as well at the end of the day? Because that that's a part of you know why you're going into business with someone else. Obviously selling

Lindsey Reighard (29:53): Right.

Ashley Kent (29:55): is great and there's all of that as well, but there's other benefits beyond just that as well.

Ashley Kent (30:02): So with all of this, so I mean, markets are changing. I was actually just at a luncheon a few weeks ago, and they gave a great overview of what private equity markets are looking like right now. specifically in healthcare, and they're seeing this trend of, you know, you know, the whole period's moving from your average of five years to now we're seeing up to 10, you know, just deals are slowing down, transactions are slowing down specifically in the healthcare, you know, services

Lindsey Reighard (30:28): No more.

Ashley Kent (30:28): space, provider service.

Ashley Kent (30:30): says

Ashley Kent (30:31): and have seen a ramp up on, you know, even digital health companies and acquisitions that are happening here. I'm curious, are you seeing similar trends on your side? And what do you and if so, what do you think is really leading to that shift?

Lindsey Reighard (30:44): I do

Lindsey Reighard (30:45): see those trends. I think hopefully ten years is a little extreme, I have talked to a number of private equity firms who are taking a step back from healthcare investments. I think there's a lot of opportunity there, but if firms don't do them regularly, they're just

Lindsey Reighard (31:01): not prepared in some respects to handle the regulatory considerations and the continuing dynamics that has to be involved. And so again, I think that's something to keep in mind if you're selling. I do have private equity clients who are very focused on healthcare and have continued to be very acquisitive. And so I think like anything there's the general market and then there are specific people still doing healthcare.

Lindsey Reighard (31:24): there is a shift more towards the services end of it. it's just a little less risky. I think we're always gonna need the services despite the changing dynamics. obviously a lot of focus on digital side, like you mentioned. So we will see. But meanwhile, I think the small add-ons are still very active. So that's promising. I think there's lots of new verticals popping up all the time. Like

Lindsey Reighard (31:51): in women's health and in other areas and so with the whole technology boom, it's televisits, everything, there's just a lot more opportunities for healthcare services. So it's growing. Just have to be there at the right time. That being said, it's never a right time to sell because you can never fully predict the economics, the markets. A sale process takes six months to a year. And so the chances of nailing that exactly are pretty slim.

Lindsey Reighard (32:20): you just have to keep growing your business and doing well. And if the right opportunity comes along, be ready for it. I have seen a lot more sales outside of the typical banker process that are more organic relationships. without a banker, I've I have one private equity firm that's looking to sell based on somebody they met at a conference. And I mean, they're selling it for hundreds of millions of dollars. So there's other opportunities there that

Lindsey Reighard (32:47): avoid all of those sale issues and timing. but you just have to be on the lookout and ready the sale. And I've also seen some sale processes take

Ashley Kent (32:57): Energy.

Lindsey Reighard (32:58): three times, so eventually it'll win.

Ashley Kent (33:01): Well, and I think that once again goes back to, you know, you being able to market yourself as the operator, but even from the private equity side, they have to be able to market themselves. and it's a great way to, you know, not to cut out the banker middleman, you know, all the time. I've got many friends over there as well. they're incredibly helpful, but you know, it can happen organically and some of those can be some of the best relationships. But it does take time to have to build up that presence on either side to start to look more attractive.

Lindsey Reighard (33:26): Exactly. I agree. A good banker is still very

Lindsey Reighard (33:28): key. And they they luckily do have a lot of bankers that are very specialized within the healthcare verticals. So definitely take advantage of that. And they probably have the best input of anyone on the auction and sale process in terms of where the market is. Yeah. Exactly.

Ashley Kent (33:40): Right, they can stay agnostic right in the middle, right?

Ashley Kent (33:43): On either side and help them evaluate these things that are important to them or not. and help them find that right fit. So well, this has been incredibly insightful, and I think just a ton of super practical insights. all the way from you know what it's looking like from the transaction itself to ongoing operations. but I do always like to end every single one of my podcasts with.

Ashley Kent (34:04): Something I call the one fix. like I was mentioning earlier, we say we get into healthcare for a certain reason. Usually it's mission oriented in some way, shape, or form. We all live and breathe healthcare every day, but we experience it as humans too. And there's a lot for us to continue to fix, and it's slow to change,

Lindsey Reighard (34:20): That's it.

Ashley Kent (34:22): as we all painfully know. So with this, I'm going to give you one magic wand where you can fix one thing in healthcare tomorrow. No budget constraints, no regulations.

Ashley Kent (34:32): regulatory constraints, no politics. What would be the one thing that you would fix?

Lindsey Reighard (34:37): I would say

Lindsey Reighard (34:38): just affordability and access. I mean that's the goal of healthcare. We're supposed to get people reliable healthcare when they need it and a lot of other things get in the way. But I think at the end of the day that's what we're trying to do. We're trying to grow businesses, provide care, get people what they need. And so I would just go back to the basics, have people focus on that goal.

Ashley Kent (35:00): That's the whole point of healthcare, right? So at the end of the day. So there we go.