Gary Herschman, Yulian Shtern Quoted in "Cannabis, Hemp Producers Targeted in May Health-Care Deals"

The health-care industry is getting into the weed business.

Several industry players announced or closed deals in May involving companies that produce cannabis or hemp used to make medical products, according to a list of select transactions compiled for Bloomberg Law by investment bankers at ECG Management Consultants and Provident Healthcare Partners LLC.

These companies are attracting mainstream investors due to their potential to generate high earnings now that their products are legal in many states, at least for medical purposes, Gary W. Herschman, a member of Epstein Becker & Green in Newark, N.J., told Bloomberg Law.

But marijuana remains illegal under federal law. So while deal volume involving producers may grow in the second half of 2019, some prospective buyers will remain wary until the federal government, as rumored, relaxes its law, Yulian Shtern, also of EBG, said.

Pace Picks Up

The more traditional health-care sectors bounced back from their slow and steady pace earlier in the year, with a total of 103 deals announced or closed during May. There have been 456 deals in 2019 so far, according to a year-to-date list.

The long-term care sector again had the most deals, with 29 reported transactions. Adding in deals in the hospice, home care, rehabilitation, and assisted living spaces, there were 40 deals altogether in the long-term care continuum, Herschman said. …

Private equity also is investing heavily in physician practices, Herschman said. Radiology remains a hot practice area for consolidation, he said.

Private investors have shown the most interest in ophthalmology, gastroenterology, ear-nose-and-throat, obstetrics-gynecology, and orthopedics practices, Herschman said. This is because those specialties have the greatest potential to increase revenues and profits through additional investments in new and expanded ancillary services, like ambulatory surgical centers, he said.

Physician practice sector acquisitions should continue at a fast pace through the rest of 2019, he said.

Targeting Artificial Intelligence

The market for health-care information technology platforms remained strong in May and likely will remain robust throughout the year, Shtern said. Buyers targeted companies that develop artificial intelligence solutions, such as remittance automation and patient data analytics functions, he said.

Specialty practice-focused software developers also were attractive deal targets in May, especially in the urgent care and remote patient monitoring spaces, Shtern said.

He attributed this to the “lack of a universal software solution that works well across multiple specialties and facilities,” as well as a growing demand for software to monitor and care for patients with acute and chronic conditions.