Trends Watch: Health Care

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with J. Christopher Mizer, CEO and President of Vivaris Capital.

What is your outlook for private equity?

I think the outlook for private equity (PE) is good, especially compared to investing in public companies. Private equity continues to offer lower valuations and higher growth prospects in general. For example, the average purchase price multiple of EBITDA is currently 11x for PE-sponsored transactions compared to 14.2x for the S&P 500. I think PE multiples are likely to come down in the short term as well, as access to debt financing contracts.

Where do you see the greatest opportunities and why? 

I see the greatest opportunities in health care. The demographic drivers will continue to be quite strong for the foreseeable future. New models of care and payment, such as the Right to Try legislation and medishare plans, for example, are creating better outcomes at lower prices. In addition, technologies like artificial intelligence and telemedicine have the potential to drive significant efficiencies that should outpace downward pressure on pricing.

What are the biggest challenges you face and why? 

The biggest challenges for PE, really for all investments in my opinion, is the combination of revaluation and recession. Based on our research, the change in average enterprise-value-to-EBITDA multiples over time dominates every other measure in determining stock market returns. Stock market valuations also directly affect PE returns since they largely determine the exit valuation. The S&P 500 has traded in a range from 6x to 14x for the past 30 years. Right now, equities are valued at the highest level. At some point, valuations will return to levels that reflect economic reality and the inherent risks and rewards. In addition, the recession caused by the COVID-19 global pandemic has caused demand destruction for many industries. We still don’t know how long or how deep the recession will be but we do know that earnings and growth will be impaired for a while. In the short-term, it will be a challenging time to manage the operations of existing portfolio companies and to maximize value through financial engineering or a liquidity event. We view these challenges as creating opportunities to acquire stronger companies at better prices, ultimately.

What keeps you up at night? 

I am very concerned about the current political environment and what’s to come in the near future. We have ticking time bombs that will require principled leadership and creativity to defuse. These are big challenges that only governments can resolve. It’s going to require uniting a broad coalition of people with diverse backgrounds.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.