In the past five years, the U.S. healthcare sector has experienced an unprecedented period of slow growth. At the same time, uncertainty around the Affordable Care Act (ACA) and its implementation cooled demand for financing for acquisitions and investment, as market participants and investors waited for the impact of new regulations to shake out.
Now, following recent gradual improvements in the economy and the U.S. Supreme Court's 2012 and 2015 landmark rulings solidifying the ACA, healthcare expenditures are trending upwards and leading industry participants and private equity sponsors are looking to shake things up. Merger and acquisition activity in the industry is accelerating as executives see the need to gain scale and are much more comfortable with their outlooks, as shown by the responses they gave in the CIT 2015 Healthcare Industry Outlook. Many executives are expecting revenues to increase along with the numbers of U.S. insured. The vast majority expects technology to help them provide better quality care, and they are investing accordingly.
As a broad-based provider of financing solutions with strong relationships across the sector,
CIT Healthcare Finance is well positioned to meet these growing needs. With more than two dozen specialists focused solely on the industry, CIT touches every segment of the healthcare landscape, executing between 35 and 40 transactions every year. CIT clients are participants or investors in services (home health, hospice, dialysis), facilities (hospitals, SNF, LTCH, IRF), physician practice and outpatient (ambulatory surgery centers, hospital services, dental, dermatology, anesthesia, behavioral), medical products and devices, pharmaceutical products and services, and healthcare information technology.
"We live and breathe healthcare," says
William Douglass, Group Head and Managing Director of CIT Healthcare Finance. "Our dedicated team interacts with healthcare companies on a daily basis, and that enables us to go where our clients want to go."
As an example of CIT Healthcare's agility and responsiveness, Douglass points to CIT's support of private equity sponsors. Many PE firms that specialize in healthcare transactions have seen increased competition for deals targeting companies with more than $15 million of EBITDA (earnings before interest, tax, depreciation and amortization). As a result, they are now focusing intently on businesses and practices with $8 million to $15 million of EBITDA, a more fragmented slice of the market where it's more profitable to help company founders scale up and grow.
"CIT has historically been very good at banking middle-market companies that are generally off many large banks' radar screens," Douglass says. "Today, we are one of a few select go-to lead lenders who have a dedicated healthcare finance practice that is committed to serving PE firms in this specific niche of the market."
CIT Healthcare Finance provides cash flow loans for buyouts, acquisitions, refinancings and recapitalizations. In addition, the team extends asset-based healthcare loans, healthcare real estate financing and working capital lines of credit. Oftentimes, CIT's breadth of coverage and experience in the sector helps win business away from other lenders who are uncomfortable committing to such a heavily regulated industry with complex financing needs. In fact, Douglass' team includes a dedicated legislative affairs specialist who spends each day tracking the latest regulatory developments in the healthcare sector.
The CIT team's deep experience in the healthcare sector recently helped it edge out a field of lenders looking to finance the consolidation of existing real estate debt and additional working capital for
Real Properties Health Facilities Corp (RPHF). RPHF, which operates 12 skilled nursing and assisted living facilities, was looking for a financing partner that could help it restructure the ownership of the company. CIT provided a $29.5 million senior secured credit facility for RPHF in the first half of 2015.
"Anybody can spend a few weeks getting up to speed on an industry. But to truly understand it, and not be surprised by the constant element of change that is occurring within it, you need to be very dedicated to the sector," Douglass says. "In this case, the client was comfortable that we knew the space and that we would be a good financial partner for them going forward."
In many cases, CIT Healthcare Finance's deep industry relationships are an element that adds value for clients and helps get transactions done.
Epic Health Services, a Webster Capital portfolio company and CIT client since 2012, recently approached CIT about leading a $210 million senior secured credit facility to support its acquisition of Loving Care Agency, one of the nation's largest independent skilled pediatric home nursing providers. CIT Healthcare Finance, serving as Sole Lead Arranger, Sole Bookrunner and Administrative Agent, underwrote and fully syndicated the financing, knowing its deep industry relationships and internal support from
CIT Capital Markets would help the transaction succeed. In the end, the deal was oversubscribed.
"We know which investors are likely to participate in the home health and Medicaid-related deals because they've partnered with us in the past," Douglass says. "They are much more likely to listen to us when we tell them why it's a good loan with a good credit story."
CIT Healthcare Finance's breadth of experience and industry relationships will continue to set it apart as healthcare providers seek to vertically integrate their operations and offerings, Douglass says. Those providers are increasingly focused on managing the whole continuum of a patient's care to help improve outcomes and ensure that discharges don't turn into readmissions. For instance, CIT continues to see skilled nursing operators seeking to integrate with home health and hospice businesses, a trend Douglass believes will pick up speed given the secular shift to fee-for-value and bundled payments.
"When you understand both the full macro healthcare ecosystem and the micro sector-level details, you are much better positioned to serve a customer's needs," Douglass says. "While others are trying to understand the reimbursement dynamics and business model, we're already rolling up our sleeves to execute on the financing."