Corporate Acquirers Versus Private Equity Investors — Who Wins?

Jeff Haxer - Partner - Healthcare Practice

Jeff Haxer: Commercial Due Diligence in Healthcare

An Article Synopsis

For both corporate acquirers and private equity investors, the key to a successful transaction is effective commercial due diligence. In this video, Jeff Haxer, a partner with Bain's Healthcare practice, discusses a few lessons that corporate acquirers can learn from PE investors.

Following are excerpts from the video to highlight key points: 

“Oftentimes, a corporation will look at it and say, "Well, I'm already in that market, and therefore I understand it. And so I'm going to take my understanding based upon the business unit that I already have in that market, and I'm going to project that that's what's going to matter to this asset that I'm buying." And they often won't take a critical lens to that market. And oftentimes, it's not the asset that will make or break the deal, it's the market. And if you miss the market trends, the asset's not going to outperform in that market.

The next piece that corporate funds will sometimes do is they'll get blinded by the synergies. They'll see a big shiny number early on and say, "We can take 10% of our cost structure out." And they put that down in the deal thesis, and they never come back to it. And the time they come back to it is after they bought the asset, and they plug it into their budgets and they find out—whoa, we can't make that. So you need to routinely scrub these synergy estimates that you have to make sure that they're going to work as you know more about the asset.

The last piece and this is critical, is private equity funds are looking for a reason not to do the deal. And what we find is oftentimes corporate BD funds are looking for confirmation of why they should do this deal. And that we can sometimes call deal fever. So be very careful about having 'deal fever'.”

My Takeaway:

In this video, Jeff Haxer, a Bain Partner focused on Healthcare M&A, compares corporate acquirers and PE acquirers. He does not use these words, but implicit in his remarks are these themes: “humility,” “suspicion” and “the scientific method.”

 Humility

Private Equity investors know what they do not know. And because of this, their curiosity beats their ego every time. They want to learn more rather than being comfortable that they already have the answer.

Suspicion

PE groups get excited about closing a deal; that’s what they want to do. And with every passing day of the pursuit of the deal, it does become harder to walk away. And yet, somewhere in the back of their minds (or the front) is the omnipresent concern that the opportunity may be less rosy than it is portrayed to be.

Scientific Method

And the reason for this circumspection is the importance placed on the investment hypotheses. The points of attraction to the deal and the risk factors or concerns will ultimately be proven true or refuted. PE investors are far more likely to actively work to confirm or refute their original hypotheses, rather than being emotionally tied to closing the deal.

Check out the full video and transcript here

This article was originally published on July 17, 2017

We look forward to hearing about what’s keeping you up at night.

Christopher “Kit” Lisle, founder and managing partner of Acclaro Growth Partners, directs Corporate Development and Strategic Planning for Acclaro as well as lending support to teams delivering projects in M&A, marketing, corporate growth planning and quasi-turnarounds.

Kit's experience in market intelligence is based upon his military intelligence services as well as working for private companies. Prior to Acclaro, he served as Vice-President of Acquisition Services for Markowitz and McNaughton, developing extensive experience with market-entry analysis and market due diligence. During his military career, Kit served as an intelligence officer in the U.S. Army: he was a Eurasia Desk Officer in the Office of the Joint Chiefs of Staff at the Pentagon.

Acclaro Services - Traditional, Post-LOI Market Diligence

Acclaro Growth Partners is a research-based strategy consulting firm that provides market/business due diligence, strategic market insights, and market growth planning, serving private equity and corporate clients.

Contact: kit@acclaropartners.com or call 703.434.3597

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