In last week’s HBI 2020 online panel discussion, Hedley Goldberg, the head of Rothschild’s global health care services arm, predicted a fairly rapid return to normal M&A volumes and pricing. Why?
Goldberg said that he felt that we were unlikely to see a buyer’s strike as we did in 2008. He says that debt markets remain strong and that health care services is a favoured sector: “There is so much dry powder held by private equity and the pressure to do deals will be huge by the fourth quarter.” He predicts that September will see the processes that were halted in the first quarter back on the table with a strong Q1 and Q2 in 2021.
He was so positive that someone asked whether we would see a post COVID-19 asset bubble in prices. He said: “I don’t think we will get a bubble. Lower quartile assets or bottom half may struggle to hold valuation but I don’t see any discount post COVID.”
Other panelists were a little more cautious with Steven Dyson at Apax Partners saying that most buyers would want to see normalised EBITDA. “I don’t think people will be willing to just take July and assume that represents normal. There might be a delay until we can get a quarter’s trading figures.” The ability to get out there and meet management teams and inspect facilities was another brake.
It was striking just how optimistic the panel was. But it is hard to ignore the dry powder argument or the incredible cheapness of debt. Goldberg is saying that the pressure will be intense to do deals after say nine months of inactivity. After the COVID-19 disruption and cancellations of the last three months, it is also easy to forget just how stable the health care services sector is compared to industries such as retail or leisure.
Of course everything hangs on whether COVID-19, like Spanish flu and the plague, returns for a second season of lockdown. That, of course, is the very real spectre at the proposed feast. Although you could argue that another season of inaction will merely intensify the pressure on private equity to do deals if they are to meet their investment targets.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.