Deal by Deal: A Private Equity Podcast

You could do very well in large-cap, private equity by consistently generating solid returns at scale and volume. It’s great for large institutions and PEs that have the time and resources to compete at slews of auctions and zoom through portfolio after portfolio to close deals, quarter after quarter.After years in this kind of environment, Harry Eichelberger of Archimedes Health Investors found independent sponsorship in physician provider services to be more exciting, more personalized, and more entrepreneurial. On this episode of the podcast, he discusses his approach to healthcare investment and how he came to focus on physician services.Also on this episode of Deal-by-Deal, hear from McGuireWoods Partner Holly Buckley on digital healthcare and healthcare IT.“We will continue to see an increase in traction on deals in healthcare IT, and there’s going to be a real race to consume the valuable assets in that sector,” Holly says.The demand has never been greater for fully invested, sustainable healthcare. COVID just brought it all to the forefront. Yet considering the events of the past year and a half, the healthcare niche is even more relevant than ever for the independent sponsor.Meet Your HostsName: Rebecca BrophyTitle: Partner at McGuireWoodsSpecialty: Rebecca focuses her practice on advising private equity funds, other institutional investors, and strategic acquirers in connection with mergers and acquisitions and other complex business transactions.Connect: LinkedIn  Name: Holly BuckleyTitle: Partner at McGuireWoodsSpecialty: Holly focuses her practice on corporate healthcare transactional work and regulatory matters. She primarily counsels private equity funds and healthcare clients and is Chair of the firm’s Healthcare Department. Connect: LinkedInMeet Your GuestName: Harry Eichelberger Title: Founder and Managing Partner of Archimedes Health InvestorsSpecialty: Harry was a healthcare private equity, growth capital, and venture capital investor before founding Archimedes Health Investors, a private equity firm, focused on healthcare, in 2015.Connect: LinkedInAcquired KnowledgeTop takeaways from this episode★    For a successful physician practice management venture, focus on alignment. The healthcare space went through two major rollups, one in the 1990s and one in the early 2000s. During those years, the relationship between management and physicians was strictly transactional, and during these downturns, their bonds quickly ruptured. When management treats physicians like true partners, they share incentives, are invested in each other’s progress and are positioned for long-term growth.★    Bet on Healthcare IT. COVID brought the forward movement of healthcare IT and digital healthcare, but this sub-sector of healthcare has been gaining traction for some time due to demographic shifts. These include: aging Baby Boomers, a declining workforce, the ever-present need to do more with less, and increased demand for telemedicine and other remote solutions. In short, the opportunity for digital health innovation is only expected to grow. Episode Insights[00:47] Independent sponsorship in healthcare: McGuireWoods Partners Rebecca Brophy and Holly Buckley discuss the transition from PE to independent sponsorship within the healthcare space with Harry Eichelberger, Managing Partner at Archimedes Health Investors.[02:54]: Bigger, faster funding: Funds in mature PE are raising more money and dispersing it more quickly.[4:01]: The sweet spot: To Harry, lower-middle and growth equity are the most exciting healthcare areas because there is a need for the capital, expertise, and strategy an independent sponsor can offer.[6:27] Dig into business models and alignment: Archimedes is deliberate about which health care spots it chooses to fund. The mid-2000s taught Harry and his colleagues valuable lessons about paying attention to long-term alignment with business models: how do companies bring value to their customers and how are they paid for? Radiation oncology was operating in a reimbursement environment positioned to fail when cuts were instituted, for example.[8:59]  History repeating: In the 1990s, physician practice management (PPM) models often failed because the physicians and the management companies were not aligned. The PPM provided little oversight or systems to help physicians operate their practices to adapt to market fluctuations. It was focused on quick money and IPOs, so it wasn’t built to last.[11:14] A different approach: Archimedes partners with physicians by tying their compensation to productivity instead of paying them a fixed salary. They create sharing mechanisms so that doctors can have access to IT, investments, systems, and management services. They also create alignment through equity ownership of the parent company. [13:28] The individual advantage: Many big, institutional sponsors are prohibited from looking at smaller deals. Not so for the individual sponsor, and starting small is an opportunity to grow a business the way you want to, not according to a pre-existing set of constraints and policies.[15:27] Start small: Find deals. Conduct due diligence. Raise capital. This is the basic playbook for starting out as an individual sponsor. It’s extremely challenging, so keeping your ambitions modest in the beginning makes the most sense.[17:41] Present as an entrepreneur, and use your relationships: Harry found CEOs took him more seriously when he emphasized that working with them was his own venture, rather than part of a cushy job with a PE firm. He was also fortunate to have many strong contacts from his days in the PE world that he could leverage.[18:46] Lean is nimble: Without the usual hours-long, extended meetings and flurry of memos that PE brings to mind, the individual sponsor can get more done in less time.[20:54] Proof in crisis: During the most devastating moments of the pandemic, some healthcare companies showed up. Others didn’t. This underscored the importance of company culture. Archimedes was in the middle of due diligence when COVID-19 hit, and Harry says this turned out to be a great opportunity to see how the company they were evaluating responded to stress.[24:27] 2021 outlook: Harry and Rebecca are both seeing delas being pulled forward. They discuss the deal outlook for the rest of the year and beyond and underscore why having the right partner is critical.[28:28] Next big investment areas: Harry and Holly talk about what specific areas of healthcare they are bullish on. Harry likes physician services, while Holly is focused on opportunities around healthcare IT and digital health.ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

The end of the COVID-19 pandemic seemed to be on the horizon until the Delta variant showed up, bringing with it the potential to shake up the deals market once again.As the end of the year approaches, dealmakers have to navigate the ongoing unknowns of the pandemic along with the other factors that are tightening the pressure valve on M&A this year.“I suspect this year is going to be just as tight [as last year], if not tighter,” Rebecca Brophy says on this episode of Deal by Deal, talking about the haste at which dealmakers will need to get things closed while operating under a breakneck volume of deals.Also on this episode, hear from DuneGlass’ Ryan Graham and Daniel Hosler about why they made the switch to independent sponsorship from private equity: “We tried to build something a little more founder-centric,” Ryan says.With their focus on healthcare services and medical practices, Ryan and Daniel share their thoughts on healthcare investment opportunities. Meet Your HostsName: Gregory Hawver Title: Partner at McGuireWoods Specialty: Greg represents private equity and strategic clients in a wide variety of change-of-control transactions, minority equity investments, domestic and cross-border acquisitions, recapitalizations, joint ventures and corporate reorganizations, as well as advising clients on day-to-day corporate matters. Connect: LinkedIn Name: Rebecca Brophy Title: Partner at McGuireWoods Specialty: Rebecca focuses her practice on advising private equity funds, other institutional investors and strategic acquirers in connection with mergers and acquisitions and other complex business transactions. Connect: LinkedIn Name: Jeff BrookerTitle: Partner at McGuireWoods Speciality: Jeff focuses his practice on advising private equity funds, venture capital funds and other institutional investors and strategic acquirers in connection with mergers and acquisitions, early- and late-stage investments, leveraged buyouts, recapitalizations, management buyouts and secondary transactions. Connect: LinkedIn Meet Your GuestsName: Thomas J. DeSplinterTitle: Partner at McGuireWoods Speciality: Tom is an accomplished dealmaker and partner in the firm’s M&A and Corporate Transactions Department. Connect: LinkedIn  Name: Ryan Graham Title: Managing Partner and Founder at DuneGlass Capital Speciality: Ryan focuses on identifying and implementing cost reduction and growth opportunities to drive meaningful improvement to the bottom line. He has deep operational expertise with a track record of growing EBITDA through revenue and margin improvement.Connect: LinkedIn Name: Daniel HoslerTitle: Managing Partner and Founder at DuneGlass Capital Speciality: Dan has operational and deep deal experience, having started three companies and spending 15+ years in private equity. He knows the universe of buyers, what private equity looks for in a deal, and how to make operational improvements to increase the value of a medical asset. Connect: LinkedIn Acquired KnowledgeTop takeaways from this episode ★    As the duration of the pandemic remains unknown, don’t expect a repeat of 2020. The Delta variant of the coronavirus has changed the course of how we thought the pandemic would end. Rising cases and potential lockdowns have the power to shake up M&A deals, but that doesn’t mean anyone should panic. Nobody wants another wave of lockdowns. Additionally, the anxiety that caused deal flow to plummet when the pandemic first started isn’t likely to repeat.★    In a seller’s market, independent sponsors have a bit more leeway to get creative. Because of how strongly biased the market is toward sellers right now, it’s hard for buyers to set very many conditions about the deals they make. But independent sponsors have a leg up due to their personal relationships with buyers that allow for more thoughtful transactions. Right now, it’s a bonus to be flexible!★    The rest of the year is going to be busy. There is a general consensus that the next few months are going to be a busy time for M&A — the QV market is particularly backed up. It’s not quite yet at the point where people are turning away work, but getting deals closed before the end of 2021 is going to be very tight. Episode Insights[01:41] Independent sponsor networking: McGuireWoods Partner Greg Hawver previews the fourth annual Independent Sponsor Conference, which will be in Dallas in October.[08:16]: Keep your finger on the pandemic pulse: Jeff says that he doesn’t think purchase agreement language is going to completely change with the new wave of the pandemic, and that the tools we’ve previously developed will likely still stand. But he points out that it’s a fluid situation.[12:22] Less fear of the unknown: Rebecca points out that, while the COVID-19 Delta variant is posing challenges to the market, she would be surprised if deals froze as much under a potential Delta lockdown as they did at the beginning of the pandemic. Now, people know what to expect a little bit more.[16:20] Gearing up for a busy season: Gregory, Rebecca and Jeff all say that they’re seeing less legal bandwidth to help independent sponsors close out deals during this busy market. Thanks to possible changes in tax law, getting over the initial pandemic slump, the continued trend of retiring baby boomers, and more, dealmakers are in for a packed end of the year.[22:21] The political backdrop: Gregory says that although the election of President Biden took place last year, people are now starting to wonder if he will enact some of the tax regime changes he said he would. New tax codes would have an impact on deals.[28:06] Keeping an eye on healthcare macro trends: Daniel says that DuneGlass looks at large healthcare macrotrends when deciding which deals to pursue. One macro trend he mentions: As baby boomers age, demand for joint replacements is likely to surge.[29:08] The golden age of biotech: Daniel says that even though he’s not a biotech investor, all healthcare investors and independent sponsors should become more familiar with the world of biotechnology. Even if you’re working in the middle market, you’ll be able to pick up on trends throughout the healthcare industry by paying attention to emerging technologies.[30:56] Why go the independent sponsor route: Ryan talks about why he and Daniel wanted to make DuneGlass an equity partnership fund that invests in small, founder-owned companies that can make a difference in the healthcare industry and in the lives of the people starting the companies.[42:47] Learning from mistakes: Daniel says that he and Ryan pay attention to the mistakes that both of them made at private equity firms. They’ve developed a specific playbook to look at management services under the guidelines of, and they make sure to take it into consideration with every new decision they make.[44:22] The future of independent sponsorships: Daniel says that he sees the rest of the investing world catching up to the benefits of the independent sponsor model, and sees a future in which this model becomes more and more dominant in the deal-making sphere.ContactConnect with us on Facebook, Twitter, Instagram, YouTube.This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

Scott Fisher, Managing Director at Pleasant Bay Capital Partners, shares his insights from over 17 years in private equity, focusing on lower-middle market investments in healthcare and beyond. He discusses effective strategies for cultivating relationships with sellers and capital providers, emphasizing deep sector expertise. Scott delves into the intricacies of deal structuring and key negotiation points like catch-up provisions and management fees. Additionally, he previews an upcoming market survey that promises to reveal essential trends for independent sponsors.

John Huhn, an independent sponsor, shares insights on landing deals. Topics include getting started as an independent sponsor, financial and legal terms to consider, finding the right partners and capital providers, the rise of independent sponsors in the banking industry, and the power of the independent sponsor community.

Richard Grant, a partner at McGuireWoods specializing in private equity transactions, joins Nathan Chandrasekaran and Pooneet Goel from Columbia River Partners to explore independent sponsorship. They emphasize innovative strategies for swift deal closures, vital management relationships in distressed companies, and the impact of technology on operational efficiency. Also discussed are challenges in raising capital, especially during the COVID-19 pandemic, highlighting the necessity of transparency and strategic networking for successful investments.

What happens when a letter of intent (LOI) doesn’t accurately capture the economics of a deal?How can you, as an independent sponsor, understand “what’s market” for the three fundamental building blocks of the independent sponsor economic package – management fees, closing fees and carried interest? These questions and others pertinent to independent sponsors and professionals who employ the independent sponsor model are the kind of topics to be explored on Carried Interest, a new podcast from the legal experts at McGuireWoods. The inaugural episode of the podcast opens with McGuireWoods Partners Greg Hawver, Rebecca Brophy, and Jeff Brooker sharing lessons learned working on middle-market private equity M&A at the ground level. Later on, McGuireWoods Partner Bryan Bylica joins the podcast to share important updates about the expansion of the PPP program.As the episode kicks off and the partners trade “war stories,” Jeff highlights an incident when an LOI wasn’t consistent with the waterfall calculations (and how it was ultimately resolved).“We really did spin our wheels with a bunch of changes, trying to draft an LOI that didn't reflect the business deal,” he recalls “And then the LOI was not as advantageous to the independent sponsor as a traditional carry would have been,” he says on the podcast.The lesson? Don’t try this (drafting an LOI) at home. Legal assistance can help a deal move more smoothly and there’s a huge advantage to having efficient documentation from the start.  Tune in to this episode to learn the three components of a conventional independent sponsor deal, to gain an understanding of recent trends in the PPP loan program, and hear other lessons learned “in the trenches” of middle-market M&A.Meet Your HostsName: Rebecca BrophyTitle: Partner at McGuireWoodsSpecialty: Rebecca focuses her practice on corporate transactions, including mergers and acquisitions, equity and debt offerings, venture capital financings and strategic collaborations.Connect: LinkedIn Name: Greg HawverTitle: Partner at McGuireWoodsSpecialty: Greg focuses his practice on private equity-sponsored M&A and other complex business transactions.Connect: LinkedIn Name: Jeff BrookerTitle: Partner at McGuireWoodsSpeciality: Jeff focuses his practice on private equity and venture capital funds and institutional and strategic investors in connection with mergers and acquisitions, early- and late-stage private equity and venture capital investments, leveraged recapitalizations, management buyouts and secondary transactions.Connect: LinkedIn Featured GuestName: Bryan BylicaTitle: Partner at McGuireWoodsSpeciality: Bryan focuses on private equity and venture capital transactions, mergers and acquisitions, and securities and corporate finance. He routinely works with independent sponsors and capital providers, including family offices, in all levels of the capital stack to put together lower middle market deals across a breadth of industries.Connect: LinkedInInvestment InsightsTop takeaways from this Carried Interest episode★    Get familiar with the three components of an independent sponsor deal (and how to account for carried interest). Conventional deals include three components: The closing fee, an ongoing management fee (usually based on EBITDA) and then the carried interest. Jeff explains: “The carry is typically the biggest piece of independent sponsor economics, and that is the independent sponsor gets a percentage of the profits that would otherwise be paid to the capital provider. That carry will typically take the form of a series of hurdles with steps based on IRR [Internal Rate of Return] and/or multiple of invested capital. And at each set of hurdles, the carry percentage will be higher.” ★    Always be on the defense when it comes to NDAs. If you have a lockdown company as an independent sponsor, Rebecca and her McGuireWoods colleagues highly recommend making sure that your NDA includes non-circumvention language in advance of talking to any capital providers. In addition, checking your NDA to ensure it has the right provisions is something easy for attorneys to do on the front end. ★    Be aware of PPP trends and changes. Congress approved a second round of PPP funding, and Bryan says it's a smaller round than the first (the maximum loan size is $2 million). It’s important to understand the improvements, some of the pitfalls (such as how they've narrowed the scope of who can apply) and that forgiveness applications for round one are starting to get processed “because if you've got an unresolved PPP loan from round one, you'll be able to apply for round two.”Episode Highlights[01:11] Introduction: Get to know podcast the co-hosts and the new initiatives at McGuireWoods, including the firm’s annual independent sponsor conference.[2:46] Podcast goals: Carried Interest will help create community among the independent sponsor community.[11:16] Out on the battlefield: The hosts (starting with Jeff) share recent “war stories” from their work in M&A transactions, especially those involving independent sponsors.[16:00] Deal or no deal?: Jeff explains the three components to a conventional independent sponsor deal: the closing fee, an ongoing management fee (usually based on EBITDA) and then the carried interest.[21:09] Eye on the prize: Greg touches on numerical hurdles and why they sometimes distract us from the more critical components that have much greater effect than whether it's 3.5 or 3.0.[23:57] Cover your bases: Rebecca explains why, if you have a lockdown company as an independent sponsor, McGuireWoods highly recommends making sure that your NDA includes non-circumvention language in advance of talking to any capital providers.[28:00] Get it while it’s hot: Bryan Bylica introduces himself and provides an update on additional expansions of the PPP program — how the scope of who can apply has been narrowed, how it’s a smaller round than the first, etc.[32:51] The sequel is never quite as good: Bryan explains why we’re seeing (anecdotally) fewer lenders in the market for PPP round two (what has a lot to do with decreased incentives for banks).[37:05] Front page news: Bryan offers his opinions on how PPP loans were portrayed (and who was doing the digging) in the media and how it could affect companies.[39:47] There’s always a downside: Bryan explains the biggest pitfall of the program, which comes about when the PPP lender doesn't want to serve as the escrow agent, meaning you're not technically compliant.ContactConnect with us on Facebook, Twitter, Instagram, YouTube. This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

Delve into the dynamic world of middle-market private equity. Hear from independent sponsors and experts as they share insights and strategies for successful deals. The discussions highlight the unique challenges and opportunities within the industry. Tune in for valuable guidance that can give you a competitive edge in navigating the private equity landscape.