Health Care Sees Consistent Hiring Despite AI Worry

Dr. Iman Abuzeid, Co-founder and CEO of Incredible Health, believes that there is still strong demand in health care hiring, with jobs numbers still increasing, albeit at a lower rate than before due to broader economic factors. She joined Carol Massar and Tim Stenovec on 'Bloomberg Businessweek Daily' to discuss these workforce trends.

The deal-heavy business model that powered what were once some of the highest-flying industrial stocks has lost its luster with investors in the face of elevated interest rates and a stampede of capital into the AI economy.

Companies including Danaher Corp., Roper Technologies Inc., Ametek Inc. and Idex Corp. built themselves by pinpointing high-quality takeover targets that they could run more efficiently, generating significant cash flow that the parent could then compound by reinvesting the funds in the next acquisition. Such firms, known as M&A compounders, were the darlings of the manufacturing world for much of the post-financial crisis period of rock-bottom interest rates. But they’re now lagging market benchmarks, as industrial investors shift their focus to companies that cater directly to the boom in data center development — and away from those who don’t.

Danaher shares have fallen by nearly a third from their peak in 2021, while Roper’s stock is on track for its second-straight annual decline — the first back-to-back slump in the company’s more than three decades on the public market. Idex and Ingersoll Rand Inc., another M&A compounder, are among the 20 worst-performing industrial stocks on the S&P 500 so far this year, a group that was broadly up about 17% through Thursday. Ametek has fared better with a gain of about 3% but still lags the benchmarks.

Each company has its own style and niche. But the compounding approach is generally akin to what a private equity firm does, except the industrial companies typically intend to keep the businesses they buy. Because the focus is principally on assets that check financial boxes — high margins, low capital intensity being chief among them — the result has been highly diverse businesses. Roper, for example, sells software to daycares but also law firms, insurers and pharmacies, while Idex sells the Jaws-of-Life tool used to rescue trapped people, as well as specialty pumps and valves and equipment for firefighters. Ametek sells medical device components, gas sensors, underwater electrical connectors, electron microscope instrumentation and specialty metal powders, among other things.

And that sprawl has generally worked for those companies, in part because it created a more bountiful universe of potential takeover targets. Roper and Danaher did so many deals they changed the nature of the companies they started with and eventually broke up. But even as activist investors criticized traditional conglomerates for their random jumbles of assets and pushed for spinoffs, the compounders were mostly left to their own devices.

These companies were growing more robustly than most other manufacturers, throwing off cash by the bucketful and their stocks just kept going up. It helped too that the corporate offices for such deal-focused companies tend to be quite small; they prefer to empower the operators of the particular businesses to make on-the-ground decisions, thereby avoiding the bureaucracy that crippled more traditional conglomerates. What wasn’t to like?

That’s changing — not because the model is broken or flawed but largely because investors’ priorities are different and the market itself is shifting. In an economy where data centers are driving most of the growth and the spending, the acquisition-powered sales gains that compounders have to offer don’t stand out as much to investors. These days, companies that were once considered in a league of their own tend to get lumped in with regular, non-AI stocks or even the challenges of the broader private equity industry.

M&A compounders are nothing if not adaptable.

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