The biggest year to date — Why 2 analysts think big things are in store for GI M&A in 2021

Private equity investment in the gastroenterology space has recovered from COVID-19-related delays and is on fire to end 2020. So, what's in store for 2021?

Here, Bill Bolding, senior analyst at Provident and Eric Major, director at Provident, offered insights on the current state of PE investment in GI and made predictions about what 2021 could look like.

Note: Responses were edited for style and content.

Question: 2020 was disrupted by COVID-19. Now, it seems the firms are making up for lost time. What's driving the flurry of activity in November and December? Were these delayed deals that were reevaluated?

Bill Bolding, Eric Major: Yes, many of these transactions have been in the works since well before COVID-19 — some even dating back to 2019. GI M&A activity has rebounded due to a couple factors. First off, in the initial Q2 shutdowns, many groups saw patient volumes drop to as low as 25 percent of pre-COVID-19 levels. Nine months later, various regions of the country have re-entered shutdowns, albeit with much more flexibility for outpatient physician groups and their patients. This has allowed groups to sustain patient volumes close to pre-pandemic levels.

Second, the lender community, which provides the credit facilities that fund transactions at these attractive valuations, has become sufficiently comfortable with the market dynamics to allow deals to progress. At the initial onset of the pandemic, many lenders in the GI space adopted a 'wait and see' approach to deals or drawdowns in credit instead of allowing transactions to proceed at previously agreed upon valuations. Now that we have more insight into the timetable of vaccine distribution and the eventual end of lockdowns, lenders can fund deals with better foresight.

Q: How has COVID-19 made a lasting mark on the space?

BB and EM: First off, the pandemic has forced the market to consider the potential downsides and risks associated with investing in specialties of medicine that are largely elective in nature. Second, the adoption of telemedicine by both providers and patients has accelerated considerably. This behavior change does not affect the procedure volumes of GI groups themselves, but will allow for greater flexibility in consultations and non-procedure based services.

Q: How would you summarize PE investment in GI in 2020, and what do you believe is in store for 2021?

BB and EM: 2020 and the pandemic forced GI stakeholders to re-evaluate deal structuring and debt considerations as provider groups struggled to maintain patient levels. These shutdowns particularly affected larger transactions and direct private equity partnerships. On the flip side, the existing GI consolidators in the market were able to close add-on and tuck-in deals, albeit often with some level of deferred proceeds.

Provident expects 2021 to be the most active year in GI to date, with the formation of both new PE-backed platforms and the expansion of existing consolidators into new markets. We also expect a full rebound in procedure and patient volumes for groups, given that diagnoses of GI-related diseases, particularly cancer, are 50 percent of 2019 levels. This will likely lead to a surge in diagnoses in the coming years, as patients who would have been diagnosed in 2020 return to their regularly scheduled screening protocols.

What do you think is in store for the GI PE market in 2021? Send your thoughts to

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