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Despite the downturn in the economy, private equity and venture capital funding in the healthcare market remain healthy, especially for information technology and consumer-directed companies focused on prevention, quality improvement and reduced costs, according to members of a Nashville Health Care Council (NHCC) panel moderated by former Senate Majority Leader Bill Frist, MD.

Unfortunately, the panelists told the 450 local healthcare industry leaders who were on hand for NHCC’s annual “Financing the Deal: Strategic Issues for Health Care Companies” luncheon, that that Nashville isn’t really top-of-mind for many major national investors

Participating in the 2008 panel were:

• Charles J. Ditkoff, managing director and co-head of Global Healthcare for Banc of America Securities;


• Allen Moseley, general partner, Noro-Moseley Partners;


• Jon Santemma, managing director for UBS Financial Services’ Global Healthcare Investment Bank Group; and


• Robbert Vorhoff, vice president of General Atlantic.

Panelists predicted it would be a long time, if ever, before the healthcare private financing market would be as strong as it’s been over the last decade. They agreed the market has never seen anything like the last two years when it was driven by excess liquidity, and private equity firms raised unprecedented amounts of money. The panelists were generally optimistic, however, that there was still an opportunity for people who need money to find success by looking harder in non-traditional areas. 

Santemma commented, “Over the last two years, banks changed their business model and started taking equity risks, and private equity guys were not taking much risk.” 

He predicted that next year would see a return to private equity deals that make sense and not deals that are being driven solely by accessible funds and liquidity, adding, “Average markets will be looking at deals that focus on deals that people want and need.”

Santemma added, “People are not losing their jobs because of bad deals being made in the healthcare industry.”

Moseley said low returns of late for venture capitalists investing in healthcare have meant a tightening in the competitive environment –– which, in turn, makes it a good time to invest and potentially reap the rewards in coming years. 

Ditkoff said companies that are significantly undervalued by the market and have strong cash flow and management teams would be ripe for private equity and venture capital firms, alike.

Healthcare startups looking for financing are less likely to find willing investors, panelists agreed, noting that a remarkable number of such companies are relying on personal credit card debt, family and friends to get their businesses off the ground.

“It’s as tough as it’s ever been in the angel market,” Moseley said. He pointed out, however, that Nashville has always had a strong angel network, especially in healthcare. “That step from idea to outside financing is a huge step and a big problem -- we think our government should take a look at it.”

Ditkoff added, the “only deals going to happen now are companies that are significantly undervalued by the market, giving PE firms an opportunity to steal these companies from the public market.” 

Frist asked Vorhoff about “uncertainty in the market and how the talk of recession has impacted it.” 

Vorhoff replied, it is “fair to say, we are seeing less deal flow coming to us, and an opportunity to take advantage of some dislocation in the markets to get behind the right management team.  We are focused on trying to find long term growth opportunities.”

Frist said an area in which the government likely would take action in the near future is in Part D and Medicare Advantage funding, which he said will likely be hard hit no matter who wins the White House.

Panelists agreed that 80 percent of what they talk about with clients right now is the elections. Frist said, “No matter what happens, there will be a winner in the healthcare business.” 

He said the perception about the effects of the election is that everything depends on who wins the presidential race, but the reality is that no matter who wins the White House, there will be a move to the left because the Democrats will control Congress. They will able to legislate for more regulation, especially in the area of pharmaceuticals, which can expect a hard hit from increased oversight.

When asked about Nashville’s notoriety as the country’s “Healthcare Industry Capital,” panelists said Nashville is viewed as a leader in healthcare services among “those who put the money to work,” but that the city is generally not viewed nationally as an overall center for healthcare.

I think that’s a good observation,” Frist said, “and I think it’s something that as a community we can work together to build on and change over time.”

The Nashville Health Care Council is an association of healthcare industry leaders working to further establish Nashville’s position as the nation’s healthcare industry capital. Founded in 1995 as an initiative of the Nashville Area Chamber of Commerce, the 160-member Council fosters the continued growth of Nashville’s healthcare industry by creating a supportive operating environment for existing, start-up and relocated healthcare businesses.


Caption: Pictured at the Nashville Health Care Council panel discussion “Financing the Deal, Strategies for Health Care Companies” are moderator Dr. Bill Frist, former U.S. Senate Majority Leader and partner with Cressey & Company; Council Chairman Wayne Smith, chairman, president and CEO of Community Health Systems; and panelist Jon Santemma, managing director, UBS Global Healthcare Investment Banking Group.



July 2008

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