This is an actual sentence from a Chicago area newspaper last April:
“Normally a fun activity, bubble blowing during a deadly Coronavirus pandemic is a dangerous, risky behavior.”
Blowing, like singing or shouting, can make those tiny aerosol droplets travel more than six feet. That this ominous warning was directed at a passing car of teenagers blowing bubbles out the window and shouting, ‘Happy Bubbles Day!’ tells you that sometimes the COVID police can be a real buzzkill.
OK, bubbles are dangerous, but not the fun, soapy kind. Let’s talk asset bubbles and the associated stupidity risks.
Bubble talk has been everywhere of late – the stock market, real estate prices, Bitcoin, Telsa, GameStop…lot of bubbles, lot of references to Dutch tulips in the 1600s (Google ‘tulip’ and the autofill will give you ‘tulip bubble’ and ‘tulip mania’).
Bubble warners, like the dour Chicago journalist, worry about too much hot air, in the case of asset prices the air being too much cheap money being pumped into the economy. There has been a lot of it, incomprehensibly large amounts. More is coming. That money has to go somewhere.
No surprise, but a lot of capital is flowing into healthcare. When you are talking about trillions, even that old non-sexy, non-tech, non-Elon one-sixth of the economy is going to get a share.
Deals are getting made all over healthcare, but per our interest here, physician practices are hotter than ever. Big operators have cash to acquire and financial investors have wheelbarrows full to deploy. Your phone is probably ringing.
I feel compelled to issue a tiny little warning. But first, a disclosure.
There is a lot I like about physicians getting together with outside equity. Some of our clients have done this deal and we are right in the middle of helping them realize their vision. The right partnership can simultaneously create a lot of economic value for physician owners and accelerate the delivery of more effective care. In 2018 I wrote 22 blog posts explaining how the private equity option works and why it makes sense for many practices (Drop me an email if you want a copy of that). We are generally fans.
Here’s the warning – maybe it is for docs, maybe for the investors:
I was talking to a friend earlier this week, he also a seasoned healthcare veteran (we are seasoned, not old) and, like me, working with many of his clients who are considering selling to private equity as opposed to the hospital or going it alone.
We both quietly whispered that while many of these deals make sense for both sides, we are seeing some that are a train wreck in the making. Knowing how the math for equity investors works and knowing the economics of some of these specialties…well, we just can’t see the path to happiness.
We saw this in the physician practice management bubble of the late 1990s. Too much money in the hands of investors who didn’t know this space, too many stupid deals, unsustainable valuation increases.
The popping was inevitable.