Private Equity’s Healthcare Holdings Face Bankruptcy Risks, Tokenization Emerges as Potential Lifeline

A recent report published by the Private Equity Stakeholder Project (PESP) has shed light on a concerning trend within the healthcare sector: a significant proportion of bankruptcies among healthcare companies are linked to private equity ownership.

According to the report, more than a fifth of healthcare companies that filed for bankruptcy last year were under the ownership of private equity firms. The nonprofit organization identified at least 17 such bankruptcies in 2023, a notable increase compared to previous years.

Among the private equity firms implicated in the report as “repeat offenders” are KKR and H.I.G. Capital. KKR, which owns physician staffing agency Envision Healthcare and oncology provider GenesisCare, saw both entities file for bankruptcy last year. Similarly, H.I.G. Capital’s investment in weight management brand Jenny Craig faced financial distress.

Additionally, the report highlighted other private-equity-owned companies that have avoided bankruptcy thus far by resorting to distressed exchanges. Examples include U.S. Renal Care, Elara Caring, and LifeScan.

In response to the growing financial challenges faced by these healthcare companies, private equity firms are exploring alternative solutions to mitigate bankruptcy risks. One such option gaining attention is the tokenization of debt. By tokenizing debt, private equity firms aim to create a new pathway for liquidity, potentially breathing new life into struggling holdings.

Tokenization, leveraging blockchain technology, offers several potential benefits for private equity-owned healthcare companies. It can improve transparency, enhance efficiencies, and provide a gateway for greater investor involvement. Even private equity firms with holdings not in default may find value in tokenization, as it offers transparency and exposure to a wider investor base.

FGA Partners, a private equity firm leading the charge in embracing tokenization, has developed a strategic approach to leverage this technology which can benefit the private equity industry as a whole, especially smaller firms that need the liquidity to keep functioning properly. FGA Partners believes that by tokenizing debt, this can help to save and create jobs, provide a lifeline for distressed companies in all industries, and ultimately increase overall value. They have expressed the desire to work with peers in the private equity space to increase the adoption of tokenization for the betterment of not only the private equity firms but for global business and employees of these companies.

As private equity firms increasingly explore innovative solutions like tokenization, they have the potential to unlock value and foster the growth of thriving companies across various industries, including healthcare. Embracing technology and thinking outside the box may pave the way for a new era of sustainable growth and resilience in the private equity landscape.

Financial Desk