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BFD Expert Voices - Health Tech Deals

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A group of senior investors, advisers and founders gathered in Miami on Tuesday to discuss the growth of private credit. The Expert Voices roundtable was part of the Axios BFD conference held in the city.

What they're saying: The hourlong discussion featured a range of views and insights on the surge of private credit offerings, how companies and clients are utilizing the products, and where banks and non-bank lenders go from here in the current macro environment.

Below is a snapshot of views shared by speakers at the roundtable.

Competition is heating up across bank and non-bank lenders.

"I think the big competition you've seen today is really that private credit has grown significantly," said David Rosenblum, fund partner at I Squared Capital. "You still have enormous amounts of demand from the middle market. So I think what happens over time … is you're still going to always have this competition between syndication, syndicate execution and private credit execution. I think we're seeing exactly that right now."

The acceptance of private credit offerings is widening.

"We're helping our corporate clients understand the full options available to them, and that these options may be different from what it used to be 10 years ago, when it was somewhat limited to syndicated capital or syndicated debt," said Ian Schuman, a partner at Latham & Watkins.

"Private credit is not necessarily bespoke to just distress situations. A lot of companies that we represent are on the IPO launch pad waiting for more favorable conditions. They don't necessarily want to do a super dilutive process. They'd rather have a strategic partner involved."

"There are some companies that would like to capitalize. They don't love their stock price right now. They'd rather turn to a pipe transaction or a preferred transaction and keep executing on the model, and have just one party to deal with, as opposed to competing parties within the same piece of paper in a syndicated loan," Schuman added.

A range of businesses are exploring private credit options.

"So think about a company that has made it through the FDA; they start to execute. They have $10, 15, 25 million in revenue; they need money to invest in sales, manufacturing, marketing distribution. Why would you go raise an expensive crossover round ahead of a sale to a strategic or at an IPO, when you can raise what looks ... like relatively cheap, structured debt?" said Kennedy Lewis president Doug Logigian.

"And then you execute for the next year, year and a half, maybe raise more equity," Logigian added.

"[Y]ou have a $2 billion valuation and we're lending $20 million in venture debt. It's a really low loan-to-value ratio, but it's very binary, the outcomes of a lot of those businesses. That's been the challenge — is when there's not profitability or assets to back up the debt," said Brian Harwitt, partner at CoVenture.

"With venture debt, I've seen companies go out of business for their founders being greedy. ... If you're not [profitable], it's a very risky thing not just for the lender but for the founder," said Carlos Domingo, co-founder and CEO of Securitize.

"As a startup founder and not being profitable, I wouldn't take venture debt. With equity financing, you won't go out of business. You might have to raise more but the company stays there and you have more time to make it work," Domingo added.

1 big thing: Private credit market snapshot

The Axios Pro private credit roundtable held in Miami. Photo credits: Ledd Villamarzo, EDIN STUDIOS

The Axios Pro private credit roundtable held in Miami. Photo: Ledd Villamarzo, Edin Studios

Dawn has broken for health tech dealmakers, say attendees at the Health Tech Expert Voices lunch at BFD Miami Tuesday, but that doesn't mean all is clear.

Why it matters: For two-plus years, M&A has been stuck in the mud, so traction of any kind bodes well, Axios' George Moriarty writes.

State of play: Optimists cite recent transactions such as AssistRX as examples of the improved market.

"We are seeing deals come out that you didn't see last year," said Matt Jackson, managing director at Oppenheimer. "And people are willing to pay more for cost of capital to get deals done."

The other side: Not every company has a market to go into yet. Green shoots have appeared in spots, but significant holds on deals remain. Concern centers around lack of surety around rate direction,  and pricing discrepancies continue to keep deals out of market.

"Prices are too low for some of the good companies," said Sailesh Ramakrishnan of Rocketship.vc. "If companies have capital, they are willing to wait. We have companies willing to wait another two quarters."

The bottom line: Additional conversations at BFD confirmed the sense that more deals are in market, and being prepared to come to market. But the all-clear hasn't been sounded yet.

"The trigger point will probably be an actual rate cut," said Bernie Grondin, partner at McDermott Will & Emery.

2. The BFD: Daylight in health tech deals market

Participants at the Health Tech Expert Voices panel. Photo: Ledd Villamarzo, EDIN STUDIOS

Participants at the Health Tech Expert Voices panel. Photo: Ledd Villamarzo, Edin Studios

Want more health tech deals? Check out the Axios Pro Deals Tracker.

• Tecum Capital and Hilltop Opportunity Partners invested in Casla Partners-backed Five Point Dental Specialists, a Fort Worth-based DSO. fivepointdentalspecialists.com

• Nautic Partners acquired home health provider Angels of Care from Varsity Healthcare Partners. axios.link/4bFL17m 

• Earlybird, a German VC firm, raised €173M for a health-focused fund. axios.link/3OI0biP

3. Deals o' the day

• Nik Morton was appointed CEO of contract research organization Catalyst Clinical Research. He was previously COO and president. axios.link/4bz2gap 

• Tim Gleeson was appointed CEO and Joe Andrew was appointed senior vice president of sales at medical device company BRIJ Medical. axios.link/3uynqVz 

4. It's Personnel

❌ FDA warns online vendors selling misbranded weight-loss, diabetes drugs — Reuters 

🏥 Major shift: Health insurers are suddenly coveting sicker patients — Axios

5. Your daily dose

illustration of a digital thermometer that reads "daily dose" 

💘 Happy Valentine's day, Health Techies! 

👀 Situational awareness: Aaron participated in V2 Communications' state of health care journalism webinar last week.

🙏 Claire and Aaron greatly appreciate the BFD Miami speakers and attendees for sharing their insights yesterday. 

✔️ Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Egan Millard. Please ask your colleagues, friends and family to sign up.

February 14, 2024

1 big thing: Private credit market snapshot