Three Strategies for Maximizing Value in the Healthcare Sector

Updated on June 18, 2024

Authored by partners at McDermott Will & Emery LLP: Ann Marie Brodarick, Julia Boyd and Kate Vera
Contributors: associates Chelsea Olivera, Isabella Forero, Daniel Mayor, and Caitlyn Cullen

In a series of discussions with players in the healthcare, investment and legal industries at this year’s Healthcare Private Equity conference, panelists shared their insights on how to maintain an edge in today’s complex economic and regulatory market. Specifically, the panelists explored strategies to accelerate growth, build strong management teams with properly aligned incentives and enact successful exits. In this article, we highlight the panelists’ major takeaways.

1. Private equity funds are managing rising inflation, market volatility and labor shortages by focusing on improvements to portfolio companies’ operational efficiency and valuations.  

As summer approaches, dealmakers and investors face various market headwinds, including rising inflation, labor shortages and uncertainty regarding the effect of the upcoming 2024 US presidential election. 

By virtue of slower deal activity, the current economic climate has created greater pressure for healthcare investors to drive growth through innovation and the deployment of capital within portfolio companies. These forms of organic growth have underpinned the strategy for investors waiting for a more favorable economic climate to plan their exit. Many investors have shifted their focus from top-line growth to bottom-line growth, seeking opportunities to reduce costs and create operational efficiencies through technology and integration. For example, the development and adoption of artificial intelligence (AI) across the healthcare sector presents opportunities for increased savings and efficiency, particularly in claims processing and reimbursement.

Technology may also alleviate the challenges posed by labor shortages, specifically in back-office administrative roles. Labor shortages pose significant challenges to companies across the healthcare sector. AI and machine learning programs that enable automation of certain processes can reduce administrative burdens and enhance efficiency, creating more streamlined operations. This further bolsters the efforts of investors and operators alike to maximize value in a resource-constrained environment. 

Because of current market challenges, many investors are seizing the opportunity to enhance the operational efficiency and value in their portfolio companies in preparation for an eventual exit. With interest rate reductions anticipated later this year, investors remain hopeful that valuations and deal volume will improve over the second half of 2024. In the meantime, however, investors and operators are focused on improving technological and administrative infrastructure to drive organic growth.

2. Alignment in mission, culture and values is key to maximizing value in the healthcare sector. 

The panelists emphasized the importance of strategic alignment in mission, culture and values between private equity sponsors and their portfolio companies. When all entities within a portfolio operate in sync, decision-making becomes agile, enabling rapid execution of organizational objectives. Whether it’s streamlining processes, optimizing supply chains or enhancing customer experiences, a unified approach ensures that every action contributes to overall value creation. This applies not only to management and employees at the company level but also between funds teams and management teams. 

Value alignment takes on even greater importance in the context of acquisitions and the resulting integration of companies into an existing portfolio. Experienced investors in the healthcare sector highlight transparency, communication and retention incentives as vital components of effective integration. Some panelists emphasized the importance of an in-person presence at target offices on the days surrounding the deal announcement. The ability to meet face-to-face with employees to talk through their concerns and reinforce the mission can drive cohesion and thereby increase value of the enterprise.

A common theme among the panelists was that alignment begins with thorough diligence. The panelists cautioned investors against chasing “sexy” investments – those with buzzworthy narratives – without a solid understanding of the underlying business model. Not all trends translate into substantial growth, and rigorous due diligence is essential during the exploratory phase of any deal. Truly understanding the value proposition, growth potential and practical scalability of an acquisition target will result in better investment decisions and an increased likelihood of alignment with long-term investment goals. 

3. To nail the exit, investors should adopt a long-term outlook on two M’s: managerial alignment and marketability. 

First, private equity investors must balance building a successful management team and avoiding disruptions to existing businesses. In the panelists’ experience, replacing existing managers without considering the decision’s impact on culture and cohesion throughout the organization is a short-term approach that could have negative consequences. A more effective approach is to ensure alignment between existing portfolio company managers and go-forward managers so that the team works toward a common goal. In the healthcare sector, for example, tensions can rise between founder-physicians and new management slates when founder-physicians give up some managerial responsibilities after the sale of a medical practice. The panelists highlighted transparency and discussions about long-term management expectations at the outset of a deal as crucial to avoiding management-related disputes after the transaction. The panelists also emphasized that forgetting the “people” element can have a significant negative impact during an exit. 

Additionally, a portfolio company must be marketable to achieve a successful exit. One approach to ensure marketability is to organize the company’s operations as if it plans to go public. This involves preparing financial statements, conducting risk assessments and making sure that the company is prepared for the underwriting process. The panelists also urged investors to assess the areas in which an acquisition target excels and strategize how to retain those qualities while integrating the organization into the portfolio’s cohesive corporate identity. 

The panelists emphasized that excellence can be achieved in part by setting the right tone with sponsors and meticulously valuing every aspect of an enterprise from the start. Whether it is major strategic decisions or small operational details, it is ultimately about building value and establishing sustainable working relationships.


Market conditions remain challenging. Healthcare industry players are optimistic about an increase in market activity following highly anticipated interest rate reductions in the second half of 2024. Until then, exit opportunities are scarce, and valuations fall short of their peak during the post-pandemic boom. Private equity investors now find themselves holding investments made at a premium, and they must wait for the right moment to divest. The focus now lies in maximizing value within the existing portfolio until market dynamics improve. It is a delicate balancing act – safeguarding investments while seeking growth opportunities. In an ever-evolving regulatory and economic landscape, investors and operators in the healthcare sector must adapt, innovate and pursue long-term value creation relentlessly.

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The Editorial Team at Healthcare Business Today is made up of skilled healthcare writers and experts, led by our managing editor, Daniel Casciato, who has over 25 years of experience in healthcare writing. Since 1998, we have produced compelling and informative content for numerous publications, establishing ourselves as a trusted resource for health and wellness information. We offer readers access to fresh health, medicine, science, and technology developments and the latest in patient news, emphasizing how these developments affect our lives.