“There’s $115 billion in assets under management with activist-style investors,” said Darren Lehrich, managing director at Deutsche Bank. “That style of investing has attracted a lot of assets, and 73 percent of activists that push for board members have succeeded.”
Activist investors are attracted by industries undergoing significant change, said A.J. Rice, managing director of UBS Financial Services, because certain companies inevitably lag behind, creating opportunity for strategy and leadershift shifts.
“They’re also attracted to sectors where they don’t do hostile deals, so with those two factors, health care is ripe for more activist investors to get involved,” Rice said.
Notably, Wayne Smith, CEO of Community Health Systems and moderator of the panel, called Glenview Capital’s role in the sale of Health Management Associates to CHS “the [activist investor] success of the century.”
The panelists also discussed the pending Supreme Court decision on King vs. Burwell, which will determine whether federal subsidies will be available to consumers purchasing health insurance in states without independent insurance exchanges. (For more on King vs. Burwell, click here.)
“It’s a tough decision for the Supreme Court and for Republican leaders if the decision is made in favor of the plaintiffs,” said Paula Torch, senior research analyst at Avondale Partners. “In that case, we might see some ‘fix and repair’ for states to set up their own exchanges.”
If the Supreme Court rules against allowing subsidies on federally-run exchanges, Lehrich said he expects about a 4 percent hit to hospital operators’ EBITDA, with companies operating in more states without independent exchanges hit the hardest.
“Markets hate uncertainty,” Rice said. “In an otherwise favorable scenario for hospitals, it’s the one question mark.”
Other trends discussed by the panel:
• Increasing access points for consumers: Calling access points “the buzzword of the year,” Lehrich said capital markets are funding growth in joint ventures, physician alignments and consumer-friendly retail clinics. “The consumer is going to be a much bigger disrupter moving forward,” Paula Torch said. “They’re going to become a more formidable factor in the future.”
• Consolidation, which is expected to be a big theme in the post-acute, skilled nursing, surgery center and substance abuse spaces.