HAMDEN, Conn., April 29, 2019 /PRNewswire/ -- Private equity activity in post-acute healthcare was strong in 2017-2018, with no signs of slowing in 2019. As hot as the market is for PE to invest in health care organizations, a frequently overlooked priority for implementation is executive talent. With so much of the daily focus on transactions, capital, "deals" and the like, PE needs to remember that investments in healthcare are essentially investments in people. Without experienced and talented executives to manage a health care investment, a growth strategy cannot be successful.
Eric Scharber, Principal, Simione Healthcare Consultants and Exact Recruiting, a Simone talent solution, suggests these three considerations for executive talent in the healthcare private equity space:
1. Build Value with the Right Talent Competition for talent in healthcare is even more fierce than in other sectors. PwC recently published an opinion that they expected healthcare private equity investments to "skyrocket" in 2019, citing that deals have tripled from 200 to 600 between 2009-2016. Many other sources have echoed that sentiment.
With so many transactions happening in this space, what separates the successful deals from the rank and file? Many times, it is the talent, or team, that a company can put together. When growing an organization and then positioning it for an exit, having a quality leadership team in place can increase the value exponentially.
Scott Herman, CEO of Elara Caring, one of the nation's largest providers of home-based care, which is owned by Blue Wolf Capital and Kelso & Company, thinks finding the right executive leaders is key to scaling an investment. Herman says, "The senior leadership team is critically important to the ultimate valuation of the company. You have to consider what kind of executive you need on the revenue band. The CEO in place for a $100M organization is not typically the same CEO needed for a $300M organization. Thinking strategically and planning for what you intend to be is key to building value via talent."
2. Find Leaders Focused on Margin and Mission What does a quality Healthcare Executive look like for a PE-owned health care organization? Certainly, a dynamic leader that has diverse experience and a track record of success is important. Scharber recommends leaders who have had success with both high performing organizations and struggling companies that needed a quick turnaround. His short list of ideal traits includes:
the ability to make tough decisions with a sense of urgency, especially given the typical timeline of an investment
industry-specific knowledge to stay current on the frantic pace of health care, including its regulatory changes, reimbursement challenges, the implications of provider integration
Herman acknowledges that the ramp up period for a leader from outside of the health care sector can sometimes be too great to satisfy the goals of the investor. "Everyone is going to be focused on the financial gains expected with the investment, but to be successful, you have to find the executive who is connected to the mission of the organization," he explains. "This is important for investors to keep in mind – ensure leaders are both qualified on paper and passionate about the service the company is providing. These two factors offer the recipe for greater success."
3. Develop Strong Recruiting & Compensation Strategies Long-term success with an investment requires the ability to retain talent at the executive level. PE firms are learning that the competition for top talent is increasing, and that they must be laser focused on supporting and motivating their C-suite team. Scharber says its best to "always assume your best talent is being recruited away. Savvy PE organizations will constantly be analyzing the situation and doing their best to stay ahead of any potential issues."
Compensation is one of the top reasons why a PE firm will miss out on acquiring an executive (or lose the executive after the fact). Average base salaries and incentive programs have gotten richer over the last 5 years, and compensation packages should be reviewed annually (including equity) to ensure they are competitive. Additionally, a lack of support from the investor/PE firm is a commonly reported reason for departure. The goals that most PE firms set (doubling revenue / EBTIDA) require significant effort and dedication by an executive team. When visions and support resources aren't aligned, executives can start to feel like they are on an island, and other career opportunities start to sound very intriguing.
A popular saying is the PE world is "we buy talent". An investor that can identify, court and retain top talent will certainly thrive. With the expected a shortage of these executives, PE firms and investors should make building a pipeline of leaders one of their top strategic initiatives going forward. If you fail to plan ahead, you are essentially planning to fail.
Build Your Executive Team with the Leaders in Post-Acute Talent Solutions Simione Healthcare Consultants spearheads M&A in home health, hospice, private duty, pediatrics, behavioral health, home infusion and DME settings. As leaders in post-acute consulting, Simione's experts understand that strategic and financial buyers need timely support to build and/or enhance their executive management teams. As part of a comprehensive rollup strategy, Exact Recruiting, a Simione talent solution, can help recruit seasoned talent to move new acquisitions into the next phase of growth.
To start the conversation and move integration goals forward, call 844.215.8825 or visit Simione.com.