Michael Madden

What’s Investable in Healthcare Right Now Yesterday I spent the afternoon at the Nashville Health Care Council Sessions event, surrounded by healthcare investors from across the spectrum: venture capital, lower middle market private equity, sovereign wealth funds (QIA), and Wall Street, discussing what’s truly investable in healthcare right now. A few clear themes emerged: 1. Profitability and strategy matter more than ever. Investors want companies that know their lane and stick to it. That means shedding unprofitable service lines, focusing on sustainable margins, and aligning business strategy with the policy environment. (Policy and strategy are inextricably linked!) 2. The Medicare pivot is here. With the last baby boomers aging into Medicare in 2029, the focus is shifting. The growth story is no longer about MA enrollment, it’s about controlling costs throughout the Medicare lifespan. Chronic kidney disease, orthopedics, home health, and specialty pharmacy are hot spots of excess spend. 3. Technology is the bridge to sustainability. AI tools that cut administrative burden, alleviate provider burnout, and help employers manage costs are investable today. LLMs are now table stakes, and it’s nonnegotiable to adopt these technologies, while recognizing the products will look very different in 3–5 years. 4. Consolidation and restructuring will happen.  Home health is ripe for roll-ups, payors are the most likely buyers for healthcare IT, and large “pay-viders” (I hate that term) may need to divest of provider assets as Medicare Advantage economics change. Partnerships with strategics are more attractive than traditional PE playbooks. The bottom line: margins are compressing and labor will have to be cut, but technology will carry the industry across the chasm. Ultimately, investors are backing companies with the experience, network, and conviction to lead through this environment, "not just tourists who heard that healthcare was a fun place to visit” (quote of the day by Marcus Whitney).

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Provider PE activity tells two stories. The headline is 57% deal value growth. The subtext is that almost all of it came from IT and services, not pure provider assets. Bain reports that provider and related services deal value reached an estimated $62 billion in 2025, but healthcare IT within the provider segment doubled to $32 billion, led by transactions like Warburg Pincus's sale of ModMed to Clearlake Capital at a $5 billion-plus valuation. Pure provider investment did not see the same acceleration. The growth went to technology-enabled assets: analytics, workforce optimization, and platform solutions. McKinsey's data explains why. Provider EBITDA margins recovered to 9.1% in 2024 but remain below pre-pandemic levels, with annual EBITDA growth from 2024 to 2027 projected at just 1% for the segment overall. General acute hospitals face additional headwinds from potential site neutrality policy changes. The uninsured population is expected to grow as Medicaid disenrollment takes effect, increasing uncompensated care and pressuring margins further through 2027. The structural growth is unmistakably in non-acute settings. Home health is projected at 6% EBITDA CAGR through 2029. Hospice at 9%. Ambulatory surgery centers are gaining procedure volume in orthopedics and cardiovascular as site-of-care migration accelerates. Hospitals' share of overall provider profits is expected to fall from 41% to 38% by 2029 as freestanding sites absorb the growth. Bain reinforces this with its physician group analysis: the next phase of value creation requires scaled, integrated platforms with a compelling clinician value proposition, not just M&A volume. Positioning a group as an employer of choice has become as strategically important as reimbursement optimization. That last point matters more than it appears on a deal model. In a market where clinician supply constraints remain a top operational risk, the ability to recruit and retain physicians is a direct driver of platform EBITDA. The sponsors building durable physician group platforms understand that talent strategy is value creation strategy.

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Peter Connolly joined Cobepa in 2015 after 11 years at Summit Partners co-leading their healthcare investment team. Most healthcare PE investors stay in their lane. Peter did something more sophisticated. He took pattern recognition from healthcare services and applied it across THREE fragmented sectors simultaneously. His portfolio (7+ board seats): Healthcare Services: BioAgilytix (bioanalytical testing) Reaction Biology (drug discovery) Precision Orthopedics (medical devices) Residential Services: Heartland Home Services (HVAC/plumbing/electrical) Ned's Home (exterior home services) Business Services: Corsearch (trademark protection) Eagle Fire (fire & life safety) SAX Advisory (accounting firm) What Peter saw that others missed: The SAME operational DNA: ✅ Recurring revenue models ✅ Fragmented markets (10,000+ targets) ✅ Defensive demand ✅ Local delivery requiring excellence ✅ Trust = switching costs = pricing power Different margins, same playbook. The Cobepa buy-and-build formula: Acquire founder-led businesses below market Add institutional infrastructure Expand services to existing customers Dominate geographies before expanding Roll up competitors systematically Exit at premium multiples or hold long-term Proof it works: Ned Stevens → Ned's Home: Started: Single-service gutter cleaning Now: 8-service platform (gutter, power washing, windows, pest, lawn, lights, roof, dryer vent) Result: 3-4x customer lifetime value Scale: ~$300M revenue, 9 acquisitions in 2024 Eagle Fire: 22 offices, 7 southeastern states 4,500+ customers annually High-complexity markets The economic leverage: A homeowner who trusts you with gutters will trust you with pest control, power washing, windows, lawn care. First service: $200-500 revenue, $150+ CAC Services 2-5: $800-2,000 revenue, $0-20 CAC LTV explodes. CAC stays flat. But here's what even sophisticated PE platforms miss: You've built platforms that CAN deliver 5-8 services. Do you have the systems that MAXIMIZE capture? Critical questions: Which customers have highest propensity for service #2, #3, #4? What's the optimal cross-sell sequence? How do you optimize ad spend based on FULL lifetime value? What triggers drive service expansion? Cobepa built platforms that can capture 3-4x lifetime value. I build the systems that ACTUALLY capture it. The offer: Pick one platform - Heartland or Ned's Home. Pick one test market. I'll build the customer acquisition hierarchy and LTV tracking infrastructure that: Maps every customer to their full service potential Optimizes acquisition spend on lifetime economics Sequences cross-sells via propensity modeling Creates defensible data advantages competitors can't replicate You've mastered buy-and-build through cross-sector pattern recognition. I'll show you how to exponentially accelerate the "build" part through systematic customer acquisition that compounds value. Peter Connolly - let's talk.

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