The last quarter of 2021 was a rough one for the health care sector, and naturally, carriers felt the effects: they had written beyond their budgets, and resources were stretched to their limits.

“I don't think the market has ever seen rates go that high,” says Sumit Agarwal, who works in mergers and acquisitions at Marsh, one of the world’s leading insurance brokerage firms. Demand was high and deals were closing at a record pace, which made placing deals that much more difficult. 

The strain on the system led to the reintroduction of exclusions of important factors like representations and warranties insurance which, if not included in the deal, “it’s not worth it,” Sumit says.

Prospects are looking a bit brighter for 2022: those exclusions have mostly fallen away, but the market is still recovering as prices go down and carriers try to settle rate prices and averages.

In this episode of The Professor’s Corner, we’re joined by Marsh’s Sumit Agarwal and Sam Bell who tell us more about the current climate for healthcare acquisitions, what we can expect for the year ahead, and mistakes to avoid when making deals.

 

Featured Guests

Name: Sumit Agarwal

What he does: Sumit is the Senior Vice President of Mergers and Acquisitions at Marsh, where he deals with transactional risk.

Organization: Marsh

Words of wisdom: “Being involved in the conversation from the start helps us overcome some challenges that may arise later in the process. And when you're looking at the eleventh hour to secure a policy, we could have gotten well ahead of it if we were brought in a lot earlier.” 

Connect: LinkedIn

Name: Sam Bell

What he does: Sam is Vice President of Marsh, where he is responsible for attracting new clients and servicing all of their commercial insurance brokerage and risk management consultation needs.

Organization: Marsh

Connect: LinkedIn

Notes From The Professor’s Corner

Top takeaways from this episode

★ The end of 2021 strained the health industry. That’s because there was record demand for healthcare deals with many being underwritten by managing general agents who had reached their maximums a lot earlier in the year than in years past. Because of those challenges, negotiations saw constraints that are no longer a problem in 2022. “There is no healthcare regulatory-related exclusion. Everyone is willing to underwrite it; it's just finding the right market to do it,” Sumit says.

★ Make sure your legal team is involved in acquisitions early on. One of the biggest mistakes Sumit and Sam see at Marsh is buyers involving their brokerage team too late in the game or hiring a third-party to speed up the due diligence process. At the very least, a full report detailing the diligence that has been done is necessary to smoothly carry out a deal. “That way, we can mark it to deal appropriately and accurately with the best carrier suited for the risk,” Sumit says.

★ Small transactions might not be worth it. For example, having a $20 or $30 million deal would allow as little as  $1 million to $5 million in limits. With the added acquisition costs and risks, the costs might not outweigh the benefits.

Episode Insights

[00:32] Meet our guests: Sam and Sumit both work with Marsh, one of the world’s leading insurance brokers and advisors.

[1:23] Looking forward: The last quarter of 2021 was a difficult one for private healthcare carriers, but things are feeling a little different this year. Sam and Sumit talk about what went wrong last year and what to expect in 2022.

[07:34] What to avoid: Sumit tells all about the biggest mistakes they’ve seen in both corporate and private equity health care acquisitions.

[11:09] Too small to succeed?: Can a deal be too small to make sense? Sumit explains which transaction sizes are worth your time.

[15:06] Special products: ‘Special product’ transactions, like underwriting the risk of PPP loan reimbursement, for example, carry specific risks, Sumit explains.

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