The COVID-19 pandemic shook the nation to its core and swept through various industries, putting a halt to many business operations and shutting down numerous businesses. Although private equity is one field that is profoundly affected by the crisis, it managed to jump back into the game before 2020 finally ended. With so many things significantly changed now, how should entrepreneurs navigate this space? Domenic Rinaldi is joined by Scott Becker of Becker’s Hospital Review to discuss how to approach private equity with smaller, COVID-19 resistant deals on the rise and his thoughts about politics influencing the possibility of regulation. He also shares the major business factors every seller must take into consideration to find success in private equity, which is mostly about maintaining independence, scalability, and financial integrity.

For more comprehensive guidance, click here to download our due diligence best practices and checklist resource for free. 

Listen to the podcast here:

Subscribe Now:

Subscribe to K2 Adviser on YouTube
K2 Adviser on Apple iTunes
K2 Adviser on Google Play
K2 Adviser on Stitcher App
K2 Adviser on Spotify

Scott Becker: Navigating The Realm Of Pandemic-Hit Private Equity

I’m pleased to welcome back Scott Becker to our show. Scott is a partner with the law firm McGuireWoods. He is also the Founder of Becker’s Healthcare Review, as well as several popular podcasts. He’s a busy man and I was glad to discuss what is happening in the private equity sector. One of Scott’s podcasts is focused on private equity and he routinely interviews principals of private equity firms, as well as attorneys and accountants that deal with private equity. Scott is a wealth of knowledge. In this episode, we touch on the unbelievable activity we are seeing in the market, the forecast for private equity deals going forward, how business owners can be better prepared for a private equity deal and how to properly vet private equity firms that express interest in acquiring your firm.

Scott shares some incredible nuggets that will help you better understand the private equity world. I know you’ll love reading his perspectives. Before we get into the episode, we’ve created a best practices and checklist for how to conduct due diligence. This is a free resource available on either of our websites, or Take a minute to download this invaluable resource. It’s a great starting point for you and your advisors when contemplating an acquisition. Thank you for being here. I hope you enjoy this episode.

Scott, welcome back to the show. It’s a pleasure to have you here.

Domenic, it’s always a great pleasure to visit with you. Thank you for having me. You do a remarkable job.

You’re such a busy guy. You have so much going on evidenced by the fact that you’ve pulled over in your car to do this interview. I’m so grateful that you’ve taken some time to do this. You’ve been on the show before. We’ve dove into some other topics but I want to spend some time visiting with you about private equity. You’ve got a very successful podcast, The Becker Private Equity Podcast. I know you meet with a lot of principles of private equity and a lot of associates in the legal profession that deal with private equity all the time. I want to dive into private equity and what’s going on there and maybe what the future holds. 2020, what a year. It was a tale of two years. You saw the first half, everybody just holds on for dear life, wondering what’s going on. The second half comes roaring back and an eclipse would have happened in the second half of 2019. What do you make of that? What do you think that means for the future here with private equity?

2020 was a fascinating year. We started a private equity conference about a couple of years ago in the healthcare sector. I’ve been watching the private equity sector for a very long time as it’s grown from being a small monopolized sector by a handful of huge funds into a sprawling area with lots of different players, lots of different investors. 2020 was a remarkable year. If you look at the second and third quarters, most professionals that dealt with private equity ended up a little bit slower whether you are lawyers, bankers, if you’re doing sell-side diligence, whoever it is and not to mention specific names. Most people ended up at some point at the second, third quarter a little bit slow as the pandemic messed up the entire world.

The biggest investors in private equity are not rich people but those with huge pension funds. Click To Tweet

You had this huge gulf of sellers needing funds but not wanting to yet decrease prices greatly. Buyers wanted to put money to work but unsure about what the world is going to look like. By the end of 2020, the world had somewhat at least rationally stabilized. It’s still a mess from a political standpoint, still a mess from a COVID standpoint. Consequently, as the world started to stabilize, some people said, “We’re going to survive this. It’s going to be okay in some way or another.” The deal world rebounded dramatically. I would say that most deal professionals, more private equity funds had a crazily busy last quarter of the year 2020 all the way to quite frankly, December 31st, 2020. People are very busy, very much across sectors. It went from people being worried about sitting on their hands for months to being crazy busy and watch deal activity getting done.

The fascinating thing about it was if you went back the last couple of years, it was all mega deals where towards the end of 2020 was tons of middle-market deals, tons of small to mid-sized deals. Everybody was very busy, and just a fascinating environment to work in. Obviously, independent sponsors I’d say a little bit differently because they’re trying to figure out new deals, family offices were busy but then traditional private equity funds that have committed funds were crazily busy towards the end of 2020.

Were you surprised at what happened with valuations? The reports that I have read is that valuations continued to increase throughout the end of 2020. It was a bit surprising. We could talk about maybe the deal structures and maybe that’s because there were more earn-outs versus maybe seller notes or more cash at closing but surprising me here that valuations continue to increase through the end of 2020. What’s your perspective on that? 

You ended up with two different types of deals. You end up with deals that people think of as “COVID-19 resistant” that were pandemic-resistant. Businesses that flourished in this challenging environment and the businesses ended up being in total, a smaller percentage of those but those commanded great valuations. They showed themselves to be stable through this pandemic era. People looked at that and said, “This is recession-proof.” Other types of businesses that got hurt by the pandemic largely had to take themselves off the market for the year because they couldn’t find pricing anywhere near that delta between what a buyer would pay and a seller would pay. You have this percentage of deals that were COVID-19 resistant that commanded great multiples and people were looking to put money to work and get into these sectors so they didn’t miss the opportunity, then you had deals that were not COVID resistant that didn’t get done last 2020.

You hit on this idea that pre-2020, there were a lot of mega deals and then you saw the middle-market light up 2020. We focus on lower middle-market deals. One of the trends that we’ve seen heat up over the last couple of years is private equity taking an active role with their platform companies in going out in making additional acquisitions, adding on and going pretty far downstream in some of these deals. In fact, we did a deal with a private equity group that had an enterprise value of $2 million, several years ago that would have never happened and we’re seeing more and more of that. Do you think that’s a trend that’s here to stay? Do you think that was just because people were looking for deal flow in a pandemic year? 

A ton of the work that I live in is in the healthcare space. In the healthcare space, the whole business model is bolt-ons and the bolt-ons could be very small. If you’re working with the dental practice platform, they are either only going to be adding on big other dental practices of significant size or they’re looking down to the 1s, 2s and 3s to try and build out a bigger system. Sometimes they’re making their money on the management information systems and other kinds of ways and so forth.

We saw an ophthalmology platform that tried to do 40 to 50 different deals in 2020. Many of those are quite small trying to add on lots of small practices. What happens is to do it, you have to get quite efficient in your practice and your processes and it just doesn’t make sense of a $2 million deal or even some of these deals are $800,000 deals unless you’re efficient and here’s what the employment agreement looks like. Here’s what the deal documents look like because you could spend so much time negotiating for ultimately a small deal.

MAU 88 | Private Equity

Private Equity: Private equity slowed down in the middle quarters of 2020, only to have a rapid comeback at the very end of the year.


This is great. I’m going to put a placeholder on this because I want to come back to what owners should be thinking about when private equity comes knocking on the door. People that were thinking they might not have been private equity target should start thinking differently about that. I agree with you. I think this trend is here to stay. Larger deals are fewer and far between, they’re harder to come by and you’ve got all these smaller deals out there that are easy bolt-ons. I think that trend is going to continue to heat up. Before we get there, I want to talk about 2021. What do you see happening? Let’s pull out the Becker crystal ball here. What do you think is going to happen in 2021 with private equity? A secondary question to that is, do you see regulation coming into play? How is that going to affect private equity? 

Some people are different in terms of prognostication. I feel like over the years it’s gotten harder and harder to prognosticate intelligently and well. Last 2020, I was betting. I would have seen deal flow fall apart. I would have seen the stock market back in 18,000 to 20,000 and a number of trends happened that changed that dynamic significantly. Interest rates ended up at zero. The stock market ended up inflated, deal flow came back with the resurgence at the end so prognosticating is hard to say. What I can say is the deal world is very busy. I’m invested in a large private equity fund. They sent out capital calls because they’ve got some deals to put money to work for, for commitments to meet our commitments, stuff like that.

It’s just indicative of what we’re seeing out there. I’m still a partner at McGuireWoods, I have been for several years. The law practice is quite busy. People that lead that practice whether Geoffrey Cockrell, Tom Spahn, Amber Walsh, Holly Buckley are very busy. The thing that is interesting is private equity funds have so much money committed to them and they have an institutional incentive to want to put that to work because they don’t have their business without it. There’s this built-in institutional pressure towards putting it to work. They have to feel like the universe is falling apart, not to try and put money to work. The numbers out there are astronomical but we’ll talk about $2 trillion in commitments for the private equity side, not even the debt side. There’s so much money committed to be put to work out there still that it’s hard not to see it staying at least reasonably healthy for some period of time.

I don’t know what will happen on the true regulatory side. What’s happening is private equity has become such a huge asset class, the biggest investors in private equity are not rich people. They’re not the 1%. The biggest investors in private equity are the huge pension funds. The huge teachers’ pension funds, the CalPERS of the world and then endowments as well. Those are the biggest investors in private equity. You ask why a great percentage of private equity leaders would lean politically blue and they may or may not. Many of them lean politically blue because their biggest investors are big union pension funds.

You have this very convoluted politics. You’ve got on one hand, the Elizabeth Warrens of the world taking shots constantly yet private equity funds. The reality is the biggest investors with private equity funds are not fat cats, might be fat cats that are running, but it is unions and teachers pensions and others, police pensions, fire pensions. Those are the biggest investors in a lot of the private equity funds. When you talk about this, it doesn’t end up being as much motivation to kill the private equity funds when you get past the surface as there otherwise would be.

That’s a great point. If regulation comes down, that’s going to impact returns which are going to impact all of these pension funds and that impacts masses of our economy.

The state pension funds are huge investors in these. That’s where the money is. The big funds are selling themselves to state pension funds.

If you had the bet, do you see regulation coming in this world?

There may be more but you do have a split Senate. You’ve got a Congress that’s very split. Under the Republican side, two of these populist surges could be anti-private equity too but it’s become such a huge part of the investing world. It’s not like you’re going to go back to being 8,000, 10,000 publicly-traded companies, at least not in a short period of time, it’s a private equity it’s a big part of the universe. You are primed at some point to have some tax increases but you might not even have the fiscal discipline in DC to do that. Even if people like me are generally anti-tax raisers, but we’ve put $7 trillion in debt in the last years. COVID-19 might’ve added three trillion on, but even before that, we had done tax cuts and no discipline on spending. Simply to spot where you are likely at some point to seek tax raises but we’ll see what the discipline is for it and how big and all those kinds of things.

Scott, let’s shift over to business owners and what they should be thinking about. I’m telling business owners every day that there’s a possibility we’re going to find a strategy that is private equity backed that’s going to be interested. The level of scrutiny is going to be much higher than maybe they even thought. What’s your advice to business owners who might have a shot at attracting private equity, whether it’s directly or through a platform company and private equity is behind that deal and steering the acquisition?

Convoluted politics lies in the way of private equity regularization. Click To Tweet

You and I know that several years ago when you went out to market, it was 50%, 70% strategics, 20%, 30% private equity and that’s been flipped. Almost at all sized deals where every deal directly or indirectly has private equity competition in it. You want to sell to a strategic, there’s just as good a chance you’re selling to private equity. They have the funds, they have the money, they have the debt, they just cannot perform on price so well.

The end of the engine. They’ve got the machine, they’ve built it. They know how to do these things. They’re efficient. They go fast. 

I always say to a business owner is first and foremost, make sure you keep your eye on the ball of running a profitable business. If you have a profitable business, now you’re not held hostage to a process. You’re not held hostage by whoever is buying you. If your business starts to go in the wrong direction during a process or what you’re thinking about a process, you’re very vulnerable. The first thing I say is keep your eye on the ball of the business. The second thing I think about everything now goes in terms of both got core cashflow but scalability. Are you at a business that has some scalability is the second issue? Are there ways to look at it where it’s scalable beyond, more widgets in, more widgets out? Is there some scalability? Is it bigger customers? Is it through technology? Are there other ways to make a business more scalable?

The third thing I look at is it a sustainable business? Are the ways to make it more consistently sustainable where it looks and feels that way? The fourth thing is you have to have good accounting systems in place? You don’t want to get to a spot where you’re going to do a deal and you’ve got to spend a fortune with accounting firms and others to get your accounting up to speed. Most businesses, smaller businesses are run on a cash basis, private equity and the real banking world works on an accrual basis. It’s something you don’t have to do but if you do a deal, you’re going to have to do cash to accrual transition and that can be hard or easy depending on what kind of business you’re in.

I look at four things, make sure the business is going great. Look at it as a sustainable business. The third is to look at it as a scalable business and fourth is you’ve got to alter your accounting, everything else in order. Domenic, these are a few of the things we think about deals. It’s, do you have a great advisor like a Domenic Rinaldi? That’s important. We also think about in terms of when we’re a seller, if there’s one seller, is that seller clear about what he or she wants? If it’s a group, a team, a board, have we got our own side on the same page? What are we looking for in a transaction? The second part is getting a buyer that’s on the same page with you, and the third is just the process to ultimately close the deal. We look at those three things.

MAU 88 | Private Equity

Private Equity: Private equity funds have so much money committed to them, and they have an institutional incentive to put that to work because they don’t have their business without it.


You can tell me if this isn’t appropriate but the one thing that I would add to that is I also tell owners to try to create as much as they can a self-managing business. A business that isn’t reliant on them day in and day out because the more they are the business, the more risk there is for a private equity group or anybody else coming into the deal will take that over. I urge my owners to try to relieve themselves of as much of the day-to-day operations as possible. I think it makes for a smoother transition for sure and it also increases the value.

There’s probably no better point than that. What happens is it’s very hard for entrepreneurs to take this advice but at the end of the day, if they make themselves dispensable, replaceable, they create a much higher-level value. The new buyer doesn’t see it as though, “We’re dependent on this person. We’re not dependent upon a business.” It’s fragile, you’ve got a single point of failure. If you’ve got a CEO leader that the business is dependent upon. It’s magnificent advice.

Your advice about the financials is so spot on. Having our firm has done, we just eclipsed 400 transactions and in all of that time, I think we’ve seen audited financials three times and the financials are usually in such disarray. In fact, when owners come to us oftentimes, we have to slow them down so that we can have them go back and build a financial package that makes sense. Your point is well taken, pay attention to your financials, get a true professional in there, get them GAAP compliant. If you can pay attention to your balance sheet, make sure that the balance sheet items are correct. You’re not doing plug numbers. Private equity is going to expect that and if they don’t get it, it’s going to slow down the process. They’re going to do a quality of earnings anyway but it’s going to make it so much harder to get the deal done if you haven’t done all the right things upfront with your financials. 

If you have a profitable business, you cannot be held hostage by potential buyers. Click To Tweet

Scott, as you and I both know, private equity is this term but it’s a catch. There are so many different flavors of private equity now. There’s true traditional private equity. There are sponsors, there are guys that are throwing, pulling money together. There are folks who have committed capital but it’s not there, they draw down and they make calls. How should owners evaluate a group that’s expressing interest in them and saying they’re a private equity group? What are the things that they should do to vet that group to make sure that it’s a quality group? 

Domenic, this is where a group like yours is so important. If you’re running a process and you come down to 12 to 15 potential commitments, 5 to 7 letters of intent, 5 to 7 serious buyers, there are several different factors you’re looking at. Where is the price and value of the deal? What are the economics of the deal? You’re looking at, does the fund or whoever you’re working with have a reputation for closing deals? Do they get deals done? Are they good at closing? Are they people that close their deals they sign on to letters of intent with?

The third is you look at is, do people like working with them? You have to do some serious talking to other portfolio companies to understand if people had good experiences working with them. Private equity funds come to my mind two core different flavors that are seriously committed funds. The common what I think of is transformational funds. A transformational fund is one that’s investing with the idea if we’re going to very quickly try and merge you with others, build this into a different thing, and transform the company.

There are other types of private equity funds that are more investors/board members but not trying to do a transformative thing with your company. Maybe bolt-ons may be add-ons but ultimately trying to run the business and help you expand the business. They help you grow the business, but they’re not truly trying to take it from 1-to-1 is 3. They’re very different flavors. You have to figure out what it is you as a seller are looking for. I look at four things: value, reputation of them as closers, reputation of them as people to work with and then, fourth, what is their approach? Are they just manage it with you or they are transformative funds? If they’re a transformative fund, either one is going to be fine. It’s a matter of what you’re looking for as a seller but they’re very different.

Those are tremendous points. I would just take your point about, are they going to be good to work with to a step further? More and more deals, we’re seeing that the private equity groups want the owners to roll over some equity and stay involved. I’m seeing that a high percentage of the time now. That’s so critical if you can’t see yourself working with these people for 2, 3, 5 years, that’s going to be a rough go. You could lose value and all bad things could happen. It’s a point very well taken. Scott, I’m so grateful and thankful you could be here. Any parting words that you would have for the show about private equity? Anything in general that would be important for people to think about? 

Domenic, you cover so much of it. The private equity word now describes one type of thing but the private equity world has become so large and sprawling. It’s different than it was years ago. It’s at one point, very few law firms, few advisors worked with private equity. Now, everybody works with private equity in some sense. In the private equity community to its credit at one point, was reflected in some aggressive, tough, driven New York type of people. Now, it’s sprawling and it’s everything. It’s good people. It’s bad people. It’s a pleasure. It’s sharks. It’s not sharks. It’s truly a business area.

MAU 88 | Private Equity

Private Equity: With almost everyone dipping their toes in private equity, opportunities in this field are booming than ever.


Scott, just to recap. You’ve got the private equity podcast, The Becker Private Equity Podcast. You’ve got a business podcast, The Scott Becker Business Podcast

We spend the vast majority of my time in two areas. Becker’s Healthcare was founded several years. I’ve got a magnificent CEO who runs that company day to day, but I spend a ton of time intersecting with the healthcare community day in day out, probably do several podcasts in the healthcare community and just really connect to that world. The second area where I started our healthcare private equity conference, a couple of years ago in the law firm, McGuireWoods, I do separately a ton of private equity podcasts. As an answer to that, we do some core business podcast. We do some business updates that keep me sharp and knowing what’s going on in the world but people listen to them. God bless them.

I always think this every time I see stuff that comes out from you, the world is better with Scott Becker around and I appreciate you taking time to join us here. 

Domenic, we’re a huge fan of yours, so we appreciate getting a chance to visit with you. It’s always a pleasure.

Thank you so much, Scott.

I hope you enjoyed this episode. If you enjoy our content, please remember to subscribe and review our show. I look forward to seeing you again in the next episode of the show. Until then, please remember that scaling, acquiring or selling a business takes time, preparation, and the proper knowledge.

 Important Links:

About Scott Becker

MAU 88 | Private Equity

Scott Becker is a partner in the healthcare department at McGuireWoods. He previously served on the Board of Partners of the firm and chaired the healthcare department for nearly 13 years.

Scott is the founder and publisher of Becker’s Hospital Review and Becker’s Healthcare. He represents hospitals and health systems, healthcare companies, surgery center chains, large practices and private equity funds. Becker’s Hospital Review is the must-read publication for every informed decision-maker in hospitals and health systems. Each of the publication’s properties — website, print magazines, e-newsletters — is robust with content that is timely, balanced, concise and written specifically for our executive readership.

Additionally, Scott is a Harvard law graduate and certified public accountant.

Love the show? Subscribe, rate, review, and share!

Join the M&A Unplugged Community today: