Rapid change in not-for-profit healthcare financing has packed a wallop at Cain Brothers, which has embarked on a strategic alliance with Lehman Brothers to reinvigorate its line of services.
The 18-year-old boutique investment banking and financial advisory firm made its mark serving not-for-profit hospitals, physician groups, nursing homes and health plans.
But that niche is changing as a result of tighter credit and a slowdown in mergers and acquisitions. Cain Brothers says the alliance will help it keep pace by tapping into Lehman Brothers' extensive analytic tools and bond distribution network.
This month Lehman Brothers acquired a 15% equity in Cain Brothers, with an option to acquire a 49% stake in two years, says Dan Cain, chief executive officer and a founding partner in the New York-based firm. He says its annual revenue is $30 million, compared with more than $7 billion for Lehman Brothers.
Cain Brothers ranked No. 8 among not-for-profit healthcare bond underwriters in 1999 with a 3% market share, according to Thomson Financial Securities Data in Newark, N.J.
By contrast, Lehman Brothers' healthcare client base is largely investor-owned managed-care, e-commerce and biomedical firms, Cain says.
But Cain says he expects the line between the two industry sectors to blur as not-for-profits engage in more joint ventures with investor-owned companies. "By teaming up with (Lehman Brothers) we can provide seamless service," he says.
Cain Brothers has five offices nationwide, and headquarters in New York. It also owns a venture capital arm, CB Health Ventures.
Lehman, which trades publicly on the New York stock exchange, has its U.S. headquarters in New York.
Cain says details of how the alliance will work are still being worked out.
Michael Blaszyk, chief financial officer of University Hospitals Health System in Cleveland, a longtime Cain Brothers client, says the alliance will increase the tools available to Cain Brothers at a time when healthcare finance is becoming more complex.
"I think (hospital) boards more and more are asking about the advisers: Are they good strong New York firms that have all the resources?" Blaszyk says.