Making An Impact - Episode 5 Recap of the Lawrence Evans Healthcare Capital Markets and Innovation Summit

Neil Johnson, Managing Partner at Lawrence Evans & Co., and Dave Opalek, Chief Investment Officer at Scioto Properties discuss the recently held Lawrence Evans Healthcare Capital Markets and Innovation Summit in Columbus, Ohio. 

Neil and Dave also provide their insights and outlook for 2021 M&A opportunities.

Connect on Linkedin: Neil Johnson and Dave Opalek

Transcript

Jason Hare 00:03
Hello everybody, my name is Jason Hare, and welcome back to Making An Impact. Again, thank you all for joining us on Making An Impact. These are a series of conversations hosted by Scioto Properties that center in and around, the disability community. Today, we are reviewing an incredible event that happened in early June called the Lawrence Evans Healthcare Capital Markets and Innovation Summit. To help us recap, we are welcoming back Neil Johnson, Managing Partner at Lawrence Evans and Co., and Dave Opalek, Chief Investment Officer at Scioto Properties. Dave was a speaker at the Summit and has over 20 years of commercial real estate finance experience, and has executed over $2 billion in real estate transactions. And Neil who spearheaded this Summit has completed over $1 billion of corporate finance transactions involving mergers and acquisitions, equity and corporate debt financings as well as distressed asset acquisitions and divestitures. Gentlemen, it's great to have you... How you guys doing?

Neil Johnson 01:08
Great. Good afternoon....appreciate having us join on and good to connect again.

Dave Opalek 01:15
Thanks, Jason. Appreciate, appreciate the invite.

Jason Hare 01:19
Absolutely, yeah, this will be a fun conversation. Neil to start out, you kind of really hit the nail on the head when it came to the date for the event. And even for the charity event the day before. I'm wondering if you'd looked at a crystal ball, talk to a fortune teller, or something along those lines because the timing was perfect. With Ohio lifting the mask mandate and the venue restrictions.

Neil Johnson 01:40
I...you know, we could not have timed it any better, you know, excited to really think about as we started planning this the prior year, and unfortunately, COVID, you know, delayed that we would get together on smaller groups and have some innovative speakers and discussions and really wanted to bring the capital and deal-making within healthcare to Ohio and Columbus. And with that, having that conversation about, you know, should we do this, should we do it as a virtual event, maybe have some presence, and ultimately into 2021. As, as the vaccines were getting out, and the numbers were coming down, we decided to move forward with the hybrid event, really not knowing the landscape and what would happen and pleasantly surprised with, you know, the state deciding to open up the day of our conference. And as much as we thought that the number of hybrid participants would be through the roof really, it was kind of the opposite. Many of those vaccinated getting out back into the field community networking, you know, wanting to join us in person. And also the number of sponsors that we had to do that was was overwhelming. So we were excited to getting kicked off this year. And I appreciate the support of Scioto as well.

Jason Hare 03:01
Yeah, yeah, people definitely showed up there was I think over 300 total participants, but more than 200 of those were in person. And you know, I was one of them. And really happy to be there to be back in a networking environment. Every... you know, I think a lot of people were really excited to be back there and networking and learning about what other businesses, you know, were there and what they do. A third of the attendees were company executives. So I think there was just a really good collection of folks who were there to kind of talk about Ohio and the investment in the healthcare space. And for us, a special shout out to Dan Dowiak and Rich Johnson, who were both speakers at the event. And speaking of speakers, you guys had a great amount of Ohio-based speakers and even folks that kind of just do business in the area. You have a great anecdote, Neil, about Columbus in Ohio, comparing it to some other, you know, small, awesome cities, but what's what was the basis for doing a conference in Ohio, focusing on investment in the healthcare space?

Neil Johnson 04:12
Well, let me start out...yes, I like to say Columbus, we're like Nashville in Austin, just not as cool, but we're working on it. There are so many wonderful health care companies in Ohio and Columbus, whether it's from the distribution of pharmaceuticals and medical supplies to health technology, as well as just the number of providers throughout the state that are thinking outside the box, being innovative, and even working globally. But the conference was not focused on Ohio companies, but more of general healthcare, as we said, Capital Markets and Innovation Summit, around the real estate around the providers and private equity and then also the innovation earliest stage, technology. You know, we're seeing a collaboration of, of a collision of all three of these coming together with through like value-based, which, you know, is deriving from more of the data points to ultimately work with the providers. And then from your perspective, obviously, you know, delivering it through different locations, which includes the real estate. Private equity, they typically don't want to invest or own the real estate, so a great opportunity to partner. And as they're growing, acquiring, and investing into different areas, you know, we want to bring them in Ohio and create an environment in the summer, which we're trying to tie along with the PGA golf tournament, Jack Nicklaus, which we thought a great time to the event. We also did pick a charity this year, the Big Lots, Behavioral Health Pavilion, mental health issues within children, you know, COVID, challenging situations, we want to bring more awareness to that, and the wonderful things they're doing. So again, just excited to bring people, money to get together to you know, again, network back face to face, as well as virtually around the country and even around the world to an extent, and we'll do it again next year.

Jason Hare 06:16
Right. I'll ask both of you guys, what would be, maybe your biggest takeaway from the event? And, you know, as you're planning, Neil, to what, what did you want people to take away from the event?

Dave Opalek 06:31
I have a thought on that if you will, I think, you know, we often hear when we're talking to the big guys and capital providers. Oh, Columbus is such a great place, I should get out there sometime. And I think, you know, ultimately, what we'd like to see out of the conference, is it to be a destination conference, where, you know, we are promoting the Midwest, and we're promoting all of the innovative things that are happening, particularly here in Ohio. And it really provides a reason for folks from both coasts, to come and really look at what's happening here, both from a technological standpoint, but also from a business innovation standpoint, I think we get we get overlooked by those guys on a pretty regular basis. I think I think the conference did open some eyes to folks who really hadn't been looking in the past. I don't know if you want to add to that, Neil. But I do think that... that, that, for me is a goal of the next couple of couple of years.

Neil Johnson 07:42
Yeah, as Ohio's typically known as more of the flyover state. And you know, there's great names, obviously, on the provider side without, you know, naming, naming them all that, again, are thinking outside the box thinking globally, and they have real estate, and they have physician groups and business service lines, and innovation centers, and what the state of Ohio has also recently done in terms of pouring billions of dollars into innovation districts to make investments, whether it's into medical devices, gene therapy, software technology, and so as the partnerships and new products, different ways of providing services to lower cost and improve outcomes, which I think everybody's trying to do, whether it's a nonprofit, for-profit, patient-provider, or insurance company, you know, we kind of cover all that bring together to kind of move healthcare forward into the, into the future, and hopefully into this post COVID world where there have been so many changes. And, you know, many, many of the companies that we deal with, we're hoping those changes will stay, you know, we talked about telemedicine, and some of the impacts of delivering care, which, you know, for myself, having dealt with my father in law, and working as a caregiver, just seeing the daily challenges, and some of the ways that technology is helping, you know, improve the lives not only the patients but the families and caregivers that can put a burden and strain on it really does help, you know, monitor better, as well as just you know, the day to day and maybe not having to take them in to see the physician but just providing some technology to hold the data points, have that conversation, get that medicine, maybe even have it delivered to you directly in your home at a click of a button.

Jason Hare 09:39
Right. When we look at the event, I know that there was a substantial amount of investment in time that it took to plan this so I'm not, I wouldn't be surprised if you're already thinking about what to do for the next year. And to your point, Neil, I love that you guys had thought of combining it with the Memorial Tournament or you know the golf tournament that was taking place the charity event was at Top Golf my first time, it was so much fun. So, where do you think the conference goes from here into next year? Are you going to kind of keep a similar setup? Do you think... Or is there anything else that you're kicking around that you might want to introduce to the conference?

Neil Johnson 10:17
Well, great question. You know, just wonderful feedback from everybody, they're happy to see something like this in Ohio, in Columbus. Really appreciate all the sponsors helping support this and looking to build on it for next year. Again, the number of companies, unfortunately, many told me, Neil, I am going on vacation, I'm going on vacation two years, my, you know, my colleague, or my, my spouse would really be unhappy if I, you know, have to put that off again. So I know many, many of those out there wanted to join us. And we hope to see him next year. And again, building on the sponsors and participants that the positive ability to walk away, knowing that you've met some new contacts in the industry, maybe somebody you didn't think would be a good contact. That's really, I think the surprising conversation that we've had that it was, I'm used to going to a conference that down the ...I'll use the golf analogy down the fairway. But really, as you start digging in the fringe of as we again, we're trying to connect in a little bit of the real estate, provider, private equity, and the technology innovation, that there's so much more overlap and connectivity that from a networking standpoint, many did not realize was there. And that's the one thing that we're excited to continue to build on.

Dave Opalek 11:41
One of the things I really did enjoy Neil, was...was the online platform, I, you know, I was there also in person. But, you know, I had several meetings scheduled with folks that were not there, the virtual presence, actually, I thought the virtual software worked really, really well, and really provided an expanded opportunity to meet a whole bunch of folks, I would never have talked to frankly. And I think, you know, going forward, that's a, it was a surprise to me, I would say it just how easy and how well, that worked.

Neil Johnson 12:19
Well, I think there's something to be said about conferences and events going forward, that this model really allows some of that collaboration. And for those that can't travel or other restrictions, then there's nothing that can replace the old handshake or, you know, bump these days, and the face to face, but the ability then to maybe, you know, see more or collaborate. And we also had the software set up so you can schedule meetings, you know, the day before, interact, virtually as well as in-person throughout the day of the event. But I think going forward, that that's something we're going to consider keeping because it just, it's provides a better broader ability for everybody to get involved and engaged. I know with the hybrid event, many others were waiting to see how this worked out to see how they create their event in the future. And the one rule we had is, we really just needed to have the speakers be in person. So we could stream that. That was the one rule. And it really overall, everybody that was engaged on a panel, you know, was fine with that. So we were excited that there were no issues around actually having people in person for that.

Jason Hare 13:39
Yeah, I think you guys really, it's funny for me to think about, because I would go to a lot of conferences back when they were more scheduled in person. So funny surprising for me to think about that this was your first conference considering how to Dave's point how very well it was thought out. So again, kudos to you guys. I'm just gonna switch gears just a little bit here.

Neil Johnson 14:01
Thanks, Jason. We had a great team helping out at Lawrence Evans and Company. So really, without the team helping put that together. And our sponsors, you know, it's definitely would not have come out of the way we would have wanted to. We really appreciate that.

Jason Hare 14:16
Yeah, that's it's a good point to point out is that Lena and Anna Young from Scioto. And Lena from your team, Neil, they both put in an amazing amount of work, especially Lena kind of keeping everything together and having a lot of answers day and day before. So we're looking at the healthcare market. This is a two-part question for both of you guys. Dave, I'll start with you. What changes have you seen in the health care market now that we're finishing up with Q2? What do you what changes have you seen from the beginning of the year to now, if any?

Dave Opalek 14:51
Well, I think I'm gonna approach this largely from the real estate context because I think Neil has a little broader insight on what's happening on the M&A front. But, you know, we're seeing a very active market right now in in in our side of the business on the behavioral side in IDD in TBI. One of the interesting trends we're finding though is that there... well, there's a lot of M&A activity, a lot of the real estate providers are opting to hang on to their real estate, which really hasn't happened in the past when, when these guys get out, they want to get out and they try to sell the whole package. You know, with the current trend in increasing real estate prices, these guys look at their real estate as an appreciation play, and are perfectly happy to hang on to it, which creates a little bit of consternation on my part, because my job is to buy real estate, Right? Um, but I think, you know, as, as the market kind of smooths out a little in the next, you know, 18 to 24 months, I think that that trend will fix itself long term. The other issue is really, the rising cost of real estate in general, is really putting the pinch on a few folks, as far as is being able to afford rents, and particularly IDD providers are getting squeezed right now. Neil, I don't know, if you want to talk about the M&A Global healthcare market.

Neil Johnson 16:29
Sure. No, obviously hearing a lot around the industry about the activity. You know, I think there's still always that what I call the bid ask spread. But taking a pause last year, the private equity family offices, they're back, and they're back, really looking to make, make investments, because, you know, they still are on the time clock, we had that conversation on our opening panel with one of the larger private equity funds...Riverside, speaking about, about that. And of course, the debt markets are bad, like private equity, you know, just like real estate, they need to leverage the businesses leverage the real estate to get their returns, that the lenders are back in the marketplace. And, and looking to lend and lend on good quality assets. And when I say good quality assets, businesses that are operating with a profit, have a good history, a good management team, and more and more with good technology. And that's even a conversation with Rich Johnson with Viaquest here in Columbus that recently partnered really sold to a private equity group. In that case, you know, he's remaining on still has equity. But you know, made some comments around, you know, really one of the reasons that need to make investments, investments in technology. And for many operators, you know, going deep dig, digging into their pockets to make that investment that they may know they need to do, it's ever so important to help manage the team, the team members as well as getting the data so that you can contract in, in today's world, so important as you partner with hospitals or other providers, as well as the payers.

Jason Hare 18:15
You know, that's a really great point, Neil, with Rich's comment, and particularly when he was talking about getting, looking for a partner in the private equity space for technology and kind of looking at it as...yes, it is an investment, they are buying the platform Viaquest. However, you know, there's something that Viaquest is absolutely getting out of that too. And that's they're getting upgraded across their organization. So I think that's a very good point. So the final question that I have, again, a question for both of you guys. And, Neil, I'll start with you this time. And then Dave, we could shoot over to you to close this out. But where do you see the opportunity for sellers and investors through the balance of this year and into 2022?

Neil Johnson 19:03
Well, starting out, number one, a lot of concern over impending tax changes, that's becoming more and more of a concern for entrepreneurs, where do they do something now? That's definitely something in the back of their mind, in a transaction perspective, where does the amount of activity going through the process, it's going to take longer than it typically does because of the third-party reports. So if you are thinking about partnering, whether it's even borrowing money, or partnering with a family office, private equity, or strategic that is backed by, by somebody, you need to be thinking moving now. that backlog into this year if you want to get it done in '21 because of concern over taxes. That's something to think about and move forward. So I think that's top of mind in most areas because there's a lot of tailwinds. A lot of government funding going into these programs, but you still need to make sure you're investing into the business investing into the people investing in the technology. And to the other point, staffing, trying to find qualified staff. Everybody is having that issue right now, hopefully, continue to get that resolved over the next year. But that's something everybody is dealing with, across the industry.

Dave Opalek 20:28
To build on that a little bit. You know, we're seeing a lot of issues around that staffing point. You know, there's a lot I mean, we're seeing sort of a weird, a weird situation where there's still a lot of pent-up liquidity. In the PE space, in the M&A space, and people there's a lot of people out there looking for deals. I think one of the things that that sort of hampering and slowing that process down, as Neil mentioned, is this that the global staffing question, really trying to figure out what it's actually going to cost to operate these businesses in the future, combined with really what is included in some of these stimulus packages, that are, that's gonna stick around long enough to really create some ROI in these spaces, is really still up for grabs. And so the first few folks to figure that out to a reasonable degree, we'll have the opportunity to, to make some trades. But you know, I think, all in all, we are going to see increasing activity in the second half. I think it took folks a little bit, the first quarter was really, you know, we're really stuck in COVID. And people were still stuck inside. And it was kind of hard to get deals done. The second quarter has opened up substantially. And, you know, pending what happens with this Delta variant... You know, I suspect that you know, through the third quarter, we're gonna see a whole lot more activity than we have in the first two quarters and even more in the fourth.

Jason Hare 22:17
That's great. Well, it's a wonderful insight from both of you guys. I really want to thank you for coming on and chatting about what we're seeing in the marketplace, but also the Lawrence Evans Healthcare Capital Markets and Innovation Summit. You know, again, you guys bring a lot of good insight. And we should definitely have some follow-up conversations in the future.

Dave Opalek 22:41
Thanks, Jason, I really appreciate it.

Neil Johnson 22:43
Right. Thanks, Jason. And obviously, any of those individuals, businesses out there that are thinking about options may be getting phone calls and letters from investors. We obviously think you should consider everything out there. Because how do you know what's a good deal? Valuations are up and you should consider all of the options you are evaluating so happy to have a free consultation discussion about that and kind of see where the market is, and look forward to a busy '21. And a lot of options are not wrong to at least consider and explore.

Jason Hare 23:22
Absolutely. And I would implore everybody that's listening to follow Neil and Dave, on LinkedIn, just to learn what these two are doing and what they're seeing in the marketplace. They do share a lot of valuable information on LinkedIn. And you'll also get updates on next year's Healthcare Summit as they become available. So it's definitely a great place to stay connected. And as Neil said, if you do have questions from a real estate perspective, to reach out to Dave from a sell or buy perspective, to reach out to Neil, I think that again, these guys are going to be a really great asset if you're exploring some options. So thank you to everybody who's tuned in to listen, we'll share the conversation on our blog at scioto.com. Visit HealthcareCapitalMarkets.com to stay on top of next year's conference. And check out the Lawrence Evans website at LawrenceEvans.com to learn more about their practice and the services that they offer. Finally, if you're not signed up for our email list, make sure that you go to the Scioto Properties website. Enter your information to ensure that you're up to date in our new podcasts. And until next time, remember to make an impact with everything that you do. Again, I'm Jason Hare, have a great week. So long, everybody!