Interview Synopsis

Cano Health – Liquidity Concerns & Potential Sale

  • Credit
  • Healthcare
  • North America

Last week, Cano Health cast “substantial doubt” over its ability to continue as a going concern within one year, announcing that it is pursuing a sale, reducing headcount by 40%, and cutting the cord in non-core markets – California, New Mexico, Illinois and Puerto Rico. Third Bridge Forum spoke to a former VP at Cano to discuss what went wrong and what could be next for the value-based primary care provider.

What next for Cano Health?

Firstly, we heard that against a backdrop of inflated valuations from 2020-2022, new clinic acquisitions that were larger and more expensive “did not perform like the rest of the company in terms of EBITDA or revenue”. In recent years Cano has also entered “five or six” new markets in a short period of time which is cash intensive and can take 3-7 years to mature. These, we heard, are among the factors that have caused liquidity challenges that the company announced are no longer sustainable. “This happened to not only Cano but there are a number of companies in this industry that are now suffering through this issue,” our expert said. 

“Two things happened, one was expensive acquisitions that maybe didn’t perform or had integration risks, etc, that harmed rather than helped the balance sheet. Then the other challenge is you entered a bunch of markets, you know it’s going to take three, five, maybe seven years to… bring those markets to maturity.” – Former VP at Cano Health

Cano is now looking to shed non-core business lines and assets1, which the specialist described as small markets outside of Florida that “never got off the ground”. Those assets could be attractive to the right organisation – even if not EBITDA positive – given the investment and membership growth to date, we heard. 

On Cano’s potential sale, the expert said they do not envisage another player seeking to buy Cano in its entirety besides Humana. Although its debt profile makes the company on the whole unattractive (USD 1.2bn), certain pieces might make sense for the right strategic buyer, the expert said. “When you look at pieces of Cano, it might be much more attractive to strategics… that are interested in the ACO or MSO business specifically.” 

We also heard the provider network for MSO and ACO are “tremendously valuable” as capital-light and potentially high-margin businesses, as doctors are not employed by Cano directly and there are no long-term leases to account for. “To me, assuming Cano is able to get through the bumps in the road here, they’re still going to have, I think, balance sheet issues, in the short and medium term, which is going to hamper the ability to grow. How do you grow if you have limited access to capital, you go to the capital-light model.”

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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