Private Equity Spotlight: Cautious optimism – trends and challenges in health care private equity

This episode features a panel discussion on how evolving regulations, shifting market dynamics, and operational challenges are reshaping the health care private equity landscape. Panelists express cautious optimism for increased deal activity in the latter half of 2025, while acknowledging ongoing regulatory and market uncertainties.

The discussion was moderated by Chris Sheaffer, global vice-chair of Reed Smith’s Private Equity Group. Panelists included Charles Simon, director at Stifel; Brandon Cohen, principal at H.I.G. Capital; Adam Boorstein, vice president at InTandem Capital Partners; and Nicole Aiken-Shaban, partner with Reed Smith’s Health Care and Life Sciences Groups.

Transcript:

Intro: Hello and welcome to Dealmaker Insights, a podcast brought to you by Reed Smith's corporate and finance lawyers from around the globe. In this podcast series, we explore the various legal and financial issues impacting your deals. Should you have any questions on any of the content, please contact our speakers. 

Chris: Just to kick things off, my name is Chris Sheaffer. I’m vice chair of Reed Smith’s private equity globally. We’re going to do a quick 30-minute panel talking about, you know, the changes that have happened over the last six months in particular has definitely been an interesting year. We've had new regulation, deregulation, up markets, down markets, tariffs, changing policies seemingly, if not every other week, kind of daily. So we wanted to pull together, you know, some of the team to just talk about what they're seeing, how those changes have impacted valuation, how things have impacted deal flow more broadly. So with that, maybe I'll just ask each of the panelists to do a short introduction of themselves, and then we'll go forward. 

Nicole: I can start. Nicole Aiken-Shaban, I'm a partner with Reed Smith in our Philadelphia office. I'm a healthcare regulatory and transactional lawyer in our LSHI group doing a lot of private equity work. 

Charles: Hi, Charles Simon. I'm a director at Stifel's New York office, focused on healthcare, services, and technology M&A across providers, pharma services, health tech, and then also have a focus area in dental and vet. 

Adam: I am Adam Boorstein. I'm a vice president at InTandem Capital. And InTandem is a healthcare-only sponsor, 5 to 30 million of EBITDA, frequently first institutional capital in. And we invest pretty evenly across provider, payer and tech, and outsourced pharma services.

Brandon: And then Brandon Cohen, I'm a principal in Miami at HIG Capital, and we're LBO fund. 

Chris: So I know when we did this last year, and obviously we stay in touch with the markets pretty closely, you know, last year we talked about, you know, new administration, less regulation around banking, more stable private credit markets, best deal year ever, 2025. 25. I know I am quoted in quite a few periodicals that have not aged well for me in terms of my predictions of the market. But maybe, Charles, let's start with you. How's the year been for you guys so far? 

Charles: With that good setup. Not what was expected. Our saving grace, just in our particular team, is that we always have a mixture of founders and private equity. We had a lot of deals in a private equity pipeline that all just sort of said like for obvious reasons like now is not the time so we just keep the dialogue open. On the founder side, those are still active and I would say the general theme if you were to ask why would somebody come to market now? It's generally people who need capital so founders who are retiring, somebody who has built a business, bootstrapped it from the ground up and don't have additional capital to continue growing they're looking for either majority or minority partner, somebody who needs to do a cap table cleanup, somebody who's in a minority position needs to exit or someone who is previously in a growth mode and has now cleaned up their company but really just needs to find somebody who will be a long-term partner. 

Adam: I would agree with much of what you said. For us, you can really split the world into two pieces. Within our existing portfolio companies, we do continue to see a large volume of add-on work. And most of that is founder-owned, relatively small. And coming to market for each of the reasons you just described, mostly either retirement or trying to continue to grow within a larger platform. So we've been active across the portfolio in adding on business. On the new deal front, it has been, I think, slower than expected. We were very busy at the end of last year, and there was the promise of a whole series of new potential sponsor trades coming in the early part of this year. Some have materialized, others have been pushed. But I think broadly, we still see very competitive processes for a handful of really good assets and many assets below the really good range that come out to a process and may not transact and are still sitting on the sidelines to look for a relaunch at some point, either later this year or into next year. 

Chris: Brandon, how are you guys looking at stuff? 

Brandon: Yeah, I would echo that sentiment. I mean, we had a pretty busy Q4. I think there were, in my fund alone, three deals that closed in the last couple weeks in December. Not necessarily all healthcare, but just more broadly. I think, you know, to Charles's point, you have to be kind of a little bit more creative, a little bit more scrappy. You know, corporate carve-outs, two of those were corporate carve-outs. I think, you know, the founder-owned deals, and then exactly at Adam's point, feels like there's kind of the haves and have-nots, where you have the A-plus assets where the market still remains hot. We've seen that on both the buy side and sell side. And then there's kind of the long tail of everything else. And I'd say many of those deals don't seem to be getting done. 

Chris: I mean, Charles, just you talked about, obviously there's certain, especially founder businesses, there are certain factors that are going to drive exit as compared to a sponsor-to-sponsor deal. I mean, are you seeing the sponsors push timelines? Like maybe they were going to launch earlier this year back to the back end or, you know, looking to start to come to market sooner rather than later. 

Charles: I’d say a lot of folks didn't have a hard timeline that they're necessarily pushing back. They sort of had a soft timeline knowing that the market was going to be questionable and if it's good they'll go. So it's less of that you know we told everybody we told our LPs this is when we're going to exit and more around watching the market. What I think a lot of people are doing are add-ons that's a key component right now. Then a lot of folks are just doing internal repair work so, you know really I should be putting in a CEO is going to be able to take it to either through a deal or for the next owner. A lot of folks who, in a hot M&A market, will just focus on M&A. And integration is sort of, they hope to get paid on it on the exit. Now you're seeing a lot of folks spending time on internal work. Integration is a key one. Supplier integration, IT systems. 

Chris: Have you guys, I mean, last year, there was a lot of pressure from LPs to transact. This year, I feel like for at least a little while, LPs backed off a little bit because they weren't sure just literally day to day how the market was going to change. Is that a correct assumption that you guys haven't seen as much pressure to return capital or is that starting to ramp back up a little bit? 

Adam: I’ll speak for myself, but we do continue to see, I think, a broad trend across the LP base that returning capital continues to be very important. However, what Charles started with, longer prep time in order to come to market really prepared for your A assets is being understood by our LPs to make sure that our shot on goal is the right one, rather than having a stop and a start. But there is certainly, I think, still pressure amongst the LP bases, both our own and new LPs that we might talk to, to really begin to return capital at a faster clip than what has been over the last several years. 

Brandon: Yeah, I would just add, I mean, there's clearly pressure. I don't think it's insurmountable. I think one of the challenges from a deal flow standpoint is on the financing side. I don't think there's a pressure that people thought may come from lenders, just given how much dry powder there is out there. When you talk to lenders, it's kind of like, hey, new deal flow is slow. I'm working on a ton of restructurings where I can kind of buy out somebody who's a little bit tired. And so I don't think you have the lenders kind of holding the gun to folks and saying, hey, you're at year five, sell now. They're kind of, let's figure out how to be a little bit more creative, at least from what I've seen in the market. 

Adam: I would agree with that. We have looked at creative solutions and extended credit facilities that were coming up for maturity, I think primarily because those lenders also don't have a ton of new deal flow. So they're staying in otherwise relatively good credits at a slightly elongated timeframe. 

Chris: Yeah, I mean, I think nobody wants to get financed out at the moment, just given opportunities more broadly. So that's certainly fair. And I do agree. I mean, on the Reed Smith side, we're still seeing a bunch of LBOs, but I would say, and this isn't just healthcare, a lot of it is prepping the balance sheet. We're selling off non-core assets. We're selling off stuff that maybe wasn't integrated properly because they don't want to deal with that through a full exit process. So it sounds like it's pretty consistent across the board with what you guys are seeing. I mean, in terms of the different healthcare verticals, obviously, that's a healthcare life science is a very broad spectrum. I mean, there are there specific areas that you are seeing more attractive than others, whether for valuation, regulatory reasons, or otherwise? 

Adam: I can start that. 

Chris: Go for it. 

Adam: We've been far more active I think in the last six months outside of provider services focused on payer and tech and outsource pharma services but but I think that that's not unique just to us and it's been shown in the multiples and where those transactions have have ultimately ended at, that there is I think a lot of interest around really scalable businesses. Businesses with less regulatory risk generally, and I think still continued to a certain extent away from core physician practice roll-ups, which has been interesting to watch on the new platform side because I think we've had personal success within PPM, but it still, I think, is relatively out of favor for the next several months, if not the next year, and focused on other areas of health care services. 

Brandon: Yeah look I think that's not unique and you know pretty similar across the board we've we've tended to focus on kind of outsourced services within health care over the last year or so because an RCM deal and then a provider of services into the derm space in the last probably six months so like those trends i think you know both from a provider standpoint and some of the challenges there also from a reimbursement standpoint. Sure, we'll talk about this in a little bit, but just some of the uncertainty there, especially things that touch Medicare, Medicaid, and the outlook around funding, around enrollment, has just made it a bit of a tough environment to kind of figure out what the right underwritable levels are. 

Charles: And just to cap that off, basically echoing what you guys said, but I think specifically pharma services, less around CROs because with RK Jr., there's a lot of just stoppage of new phase trials, new funding, but things that are serving the industry, especially for post-commercialization companies, services into them, services into PPMs, a lot of pharma logistics, pharmacy logistics, a lot of cold chain has been hot for a couple of years and will continue to be hot. And then I think home health is continued to hum along and the demographics of the big boomers retiring just supports that as a good long-term play. 

Adam: Just one additional comment on that. I do think it's an interesting dynamic in provider services in that the provider services that are the most triple-aimed or quintuple-aimed aligned, even if not core physician services, still do see traction in the deals that we see, in what gets done. So I think there still is a market there. It just is being really focused on, is it outsourced services into something? Is it home health? Is it a site of care shifting thesis? I think lowering costs and improving access is becoming even more important now than it was in the last several years. 

Chris: I mean, Charles, you brought this up, but let's, maybe Nicole, I see this as well. I mean, the changes of the administration have been significant. How has that impacted, you know, Nicole, maybe I'll start with you, you know, regulations more broadly, or just kind of the approach that you're seeing people take to the market and how they address some of these changes? 

Nicole: So with respect to changes coming from this administration specifically, I think two may be worth mentioning. There are obviously a lot of them. There could be a very long discussion about it. But the DHS reorganization, which was announced back in March and has resulted in a reduction of about 20,000 full-time employees from DHS. So HHS at the federal level does a lot of involvement in change of ownership approvals and other deal-related processes for certain types of providers, as well as other oversight work that we've seen have an impact on some of the decisions about where transactions might be going from a provider perspective and what types of providers maybe investment in. There's the One Big Beautiful Bill Act that everyone is, I know, tracking in the press. That is a very large pending piece of legislation that could have significant impact in the healthcare space, particularly on traditional provider industry. So you've heard the panel talk about diversification into payer support services, other support services, pharmaceutical services, services outside of what we consider within healthcare to be a provider service that is reimbursed either by the federal government or a third party payer in a more traditional way for the delivery of health care services and items to patients. Because the latter category could be heavily impacted by that bill, depending upon what it looks like if it goes through, including potentially large changes to Medicaid that will impact certain types of providers that rely very heavily on Medicaid and just a number of other changes, obviously, that are involved in that. On the non-federal side, though, Chris, I just want to mention again, those healthcare state transaction loans. So we talked about those last year. I think everyone in this room is aware of them. They are becoming more impactful on the transactions that we are doing. So some of these target private equity specifically. Indiana is a great example of that 90-day pre-filing requirement. Any type of merger acquisition with a healthcare entity, even MSO structures can be pulled in. Connecticut has pending legislation, just as an example, there are more coming up, about prohibiting private equity and re-ownership of certain facilities, hospitals, skilled nursing facilities, and strengthening statutorily the corporate practice of medicine doctrine in Connecticut, which is interesting. And that would affect the PPMs that we've heard, you know, discussion about as well. But also just worth noting is some of these states where there are existing laws, we've all started to do transactions going through those processes and are learning from them, Oregon being one very painful example for probably most of us in this room. And what we're seeing clients do and we're helping them with is when we have the runway to think about an exit and we have time to prepare internally, it's not just preparing financially and operationally. It is, what if we have a really small operation in a problematic state like Oregon? We don't want that to hold up a much larger exit. Can we do something about that now to potentially avoid the pain when we get to the sale process? And so I think that strategy is really playing into some of those sales side processes that we're talking about. 

Charles: Yeah, I would echo that. I think that that's the big point. The state's component is that's where we're focused. So on the federal level, just to touch on it briefly, that will determine what assets are going to be interesting for new investors. So I think all the work requirements around Medicaid, that's going to really just kick out a lot of people who would otherwise be eligible. If you're in a business that has more than enough Medicaid volume, then you probably don't care, but it will impact around the margins and probably more so. Things like pediatric dental that's covered by it, you know, worry less. I don't think that there's going to be big changes to Medicare Advantage, But that's in the news a lot because United and some other players are going through basically a review of their practices. So I think there the industry will do internal cleanup to avoid regulators wrath. So the federal level, Medicare, Medicaid, is really a determination of what's going to be a strong asset or a less strong asset. But where we really spend a lot of our time thinking about day-to-day basis is the states. So we sold a business in Massachusetts. They had a big regulatory effort. There, the regulators wouldn't even start the review until they had every piece of paper in front of them. So that was pretty annoying. Once we sort of got through that, it was fine. The review was actually not bad. We just had to sort of get them to get moving. One of my colleagues sold a large Medicaid payer business in New York. They signed that on December 31st, 2023, and didn't close until December 31st, 2024. And that was all tied to the New York State regulator. And then right now, we're doing a deal that California will have a big presence. And even selling with a public company that's going to have to do a shareholder vote, register share for the SEC, our long pull and attempt from execution standpoint is the OCC regulators in California. 

Adam: I broadly agree with what's been said here. We do spend most of our time thinking about state-by-state regulation. And I think with the exception of a handful of states, Oregon in particular, where there is some really aggressive legislation. We have gone through a series of smaller transactions in some of the states that have mandatory either waiting or review periods. And it may be that it is still new in several of these states, but after a waiting period, it is very akin to an HSR filing where there was no enforcement, no questions, all the paperwork was done, and we were able to close. And so as we think about our sale processes and buying new assets, we're just building longer closing timelines in, following signing, but are watching a handful of states very closely to see if legislation that's passed in those states is picked up in some form or fashion across new states to add to the areas that we need to be looking out for, either acquiring or building new business in certain states. On the Medicaid side, I would agree. I think there are certain protected populations, waiver populations, pediatrics, that I don't expect to have material movement, but certainly work requirements and adult Medicaid recipients will be something to watch in the next year or broadly as more comes out about what ultimately will become of state-by-state Medicaid programs and of federal matching beyond those. 

Brandon: The only other thing I would add, you know, I think from a investment committee standpoint, it's just a lot of uncertainty, right? I mean, you go back two months ago, and it was kind of, hey, the base case should be the recession case that's changed and gone back and forth probably several times over the last couple months. But, you know, I agree with everything that everyone said. And I just think that uncertainty just makes it a little bit harder to kind of get through investment committee, you're running more cases. And, you know, things just seem to change from day to day. So it makes it tougher to underwrite some of these deals, especially if there's any element of that complexity. Again, on the one hand, that creates opportunity. On the other hand, it just makes it challenging for a seller and buyer to find common ground. 

Chris: I mean, I assume your IC reviews are just taking more time, you know, in general with a lot more questions. And I'll maybe use HIG, which is obviously multi-strategy. I mean, how are you getting some of your team comfortable with these changes that are literally daily, weekly? We were taking a business to market, wouldn't have thought that it would have directly been hit by some revenue issues because of some changes more broadly. It was, and it was like three levels down where we realized we were probably going to get hit through the supply chain. I mean, how are you getting kind of the broader IC comfortable that, you know, especially on the state level, that there's not going to be a, you know, an imminent change coming between signing and closing that's really going to hit you? 

Brandon: Yeah, look, I think it's on a case by case basis, right? I mean, we've seen multiple processes get pulled, all right, you know, kind of post-LLI or in some cases, pre-LLI, especially things, DME space with tariffs, and same thing on the Medicaid side, right, where it's just really challenging to underwrite. I know what the volume is today. I can look back at the last 100 years and it grows by 1%. I can't do that math anymore. And so we've seen a number of processes get pulled. And I think there have been probably a handful where we've said, I can't think of an IC instance, but where we've said, hey, let's press pause on this and do some more work. So I think it's on a case-by-case basis. But yeah, it becomes pretty challenging to kind of underwrite what's going to happen tomorrow. 

Chris: I mean, Charles, how are you giving guidance to your clients, right? I mean, you know, I feel like for the last, well, my entire career, it's get the deal done, get the deal done, get the deal done. Right now, it's, especially for the buyers, well, let's see, let's see, let's see what happens, you know, unsure. I mean, how are you counseling kind of the balance between the risk versus, you know, the pressure to get deals closed? 

Charles: I mean, I think it's sort of what was said. I think really it's just a longer timeline to close. So instead of just the expectation that you're going to have simultaneous signing close, now you just know you're going to have, or shortened between signing close, you just know now that you're going to have longer timelines. So what we're actually seeing is a lot more discussions as we're entering the LOI phase around And a lot of board members are saying, hey, can you give me an updated timeline? How long to close? Whereas previously you just said, okay, well, you know, it'll take them, you know, 60 days. And then we've got two 15-day periods where, you know, exclusivity can get extended. And then now you're really having to map out all of the different state regulators. I can't talk to them. So there you go. 

Chris: Nicole, I don't know if you want to add anything in terms of what you're seeing on the legal side. 

Nicole: I think that's right. I mean, it is, and we talked about this a little bit earlier, but it is trying to plan for the timelines in those circumstances. I, you know, we have seen if you're selling, you want to try to get signed up as quickly as possible. I think, you know, I was on a team where we got from, it was about a five day turnaround from a markup to getting to signing and it was all hands on deck, you know, but it's just trying to, you know, move as quickly as you can to get the buyer locked in because of the uncertainty. And then I think on sort of the buyer side, it has been more of a little bit of, well, can we draw it out a little bit longer and see where things are? And some of that is planning on these timelines and trying to build that in on the back end. And some of it is just slowing down the getting till signing, depending upon the market that they're in and whether, you know, the Q of E's are coming back consistent with what you thought it would be. And some of those other challenges that I think seem I'm noticing are coming up more frequently than they have in the past. 

Chris: I know we're wrapping up here on time, this one very quickly, but recognizing all of the uncertainty that we've discussed here. I mean, how are you guys looking at the rest of the year? Maybe I'll just ask each panelist to give their perspective. Do you think we're going to see an uptick in activity? Do you think it's going to be a slog for the rest of the year? Maybe we're looking at 2026, but whoever wants to kick things off, go for it. 

Brandon: Happy to kick things off. Look, I think notwithstanding all the challenges we just spoke about, and I think we're all kind of set on this baseline of 2021-2022 deal activity, when you look across our healthcare deal activity, businesses with $10 million of EBITDA+, across all the HIG funds, I mean, volume is up, right? So it's up 70%, still call it 90% of peak levels. So, you know, there are deals coming to market, the close rates lower as we as we spoke about. And so, you know, you are you are seeing the volume increase. I think we've all been here for the last two years as you kind of started off and, you know, you're going to have that that great wave of deal activity. And, you know, I'm not sure what the impetus is for that to come. But, you know, we have seen 24 and then into 25 kind of a steady uptick. And I think that continues. 

Adam: Yes. I remain pretty bullish that the end of this year will be much stronger than where we started. I think for a couple reasons. First, you have diversified funds that might be indexing more heavily to certain areas of healthcare because they're not exposed to things like tariffs or other sort of cross-border considerations that U.S.-only services may have. So I think that starts to bring in potentially a new buyer set into certain areas. And I think second, there does continue to be ongoing pressure to a lesser extent than we expected from lenders, but yet still there, as well as LPs on the sponsor side to make sure that you're transacting in normal course and normal cadence. And I think third, there is always a push towards the end of the year. And so for those who may have prepped for a longer period of time to wait out a bit of uncertainty. Late summer, I think, is the time for many of those to come to market as some of the first several months here and reactions to policies that have been laid out or executive orders that have been laid out with more knowable now outcomes of either something has happened or something has not happened will influence, I think, a much stronger third and fourth quarter than we've seen early on in the year. So we continue to be pushing on and expecting that there is a bolus of platform activity between 10 and 20 million of EBITDA that might spill into the first quarter of 26, but is certainly in market this year. 

Charles: Yeah, I'd agree with that. I think volumes are definitely up, but they're on smaller deals. So you're working hard on live transactions, but the total deal volume at the end of the year will not be as high as the scars that you have at the end of the year. But if that's what needs to get done, that's what happens. I do agree that there will be, I think there will be continued to be wins on the small side, and then there will be sort of medium-sized companies that come to market, get decent exits. So I don't think that we're going to see a floodgate opening. But I think that, Adam, your point around people coming to market the back half of this year, maybe closing Q1 of 26, I think that's very likely. I think we'll see a lot of basically the green shoots, to use the old proverb, and then 26, I'd like to say it should be better, but I think it's just going to be a slow recovery back to what should be normal. 

Nicole: And at the risk of creating press that will haunt me later as well, Chris, I'll say, I think that I agree with everything that's been said, so I won't use up a lot of time repeating it. But I am also optimistic that the end of the year, you know, end of Q3 into Q4 will be picking up. And whether that's from pressure for the sale of certain assets that have been held for a long time that, you know, just need to be sold or, you know, a little more uptick because we have a little more certainty from the changes the administration has proposed and other considerations. I do think we'll see some more movement. 

Chris: Well, it's great to hear in terms of an ending note and doing it positively. So thank you to our panelists. We really appreciate the time. Very informative. Thanks. 

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