Advent’s healthcare portfolio steers busy 2020 as firm digs deeper into tech

Bringing something unique to the game has worked out pretty well this year through Advent’s focus on existing platforms, with tuck-in M&A totaling nearly $2bn in combined enterprise value.

Portfolio-driven M&A has fueled a proactive pandemic year in healthcare for Advent International, whose senior members are closely watching how technology adoption lends to new pockets of opportunity.

That means avoiding chasing business models that are “immutable,” John Maldonado, managing partner and head of North American efforts, told PE Hub in a recent interview.

“Prices are really sky-high, and so if we’re going to pay sky-high prices, we might want to look for [opportunities] that we feel like we’re bringing something unique to the game; and ideally, it’s in a market or it’s a company benefiting from some of these fundamental shifts as a result of covid,” Maldonado said. Besides tech, that includes the shift Westward of the pharma supply chain, he noted. 

Bringing something unique to the game has worked out pretty well this year through Advent’s focus on existing platforms.

Despite months of pandemic-stalled sale processes, dealmaking across Advent’s existing healthcare portfolio this year translates to combined enterprise value of nearly $2 billion, the firm told PE Hub. (That falls just below the $2.3 billion invested or committed capital in 2019.)

All but one of the nine investments were tuck-ins. While not yet announced, PE Hub recently wrote that Advent agreed to join Great Hill Partners as an investor in RxBenefits, which helps self-insured employers manage pharmacy benefits and costs. The deal is valued between $1.1 billion and $1.2 billion, sources have said. Advent declined to comment on the transaction.

Advent has largely stuck to the fundamentals of its pre-pandemic strategy, which include: the restructuring of the large-cap pharma universe, the increasing shift to outpatient care, and the use of technology to drive better value and decision making across healthcare.

Tom Allen, Advent managing director

“The reality is, that overall strategy that we’ve been pursuing has just been increasingly relevant as we’ve gone through the covid period,” said Tom Allen, who as a managing director out of Advent’s London office leads European healthcare efforts.

Advent’s model of long-term relationship development has enabled the firm to build value creation plans behind the investments already in place, remaining “competitive in terms of helping [portfolio] companies acquire assets which are highly sought after, but still make the returns and rationale work for the companies and our funds,” Allen said.

For example, Advent supported AccentCare’s grander ambitions as an M&A platform, snapping up Seasons Hospice & Palliative Care last month, diversifying beyond its skilled home health roots and into hospice care.

“We viewed hospice as the place we really wanted to beef up, which is why we didn’t just chase Seasons; we chased Seasons, St. Croix Hospice and Care Hospice,” Maldonado said.

Seasons in particular appealed for reasons that include its single-EMR and organic-versus-M&A growth. But it also brings value in diversification defensiveness, he said, “if ever something goes bump in the night from a reimbursement perspective in one of your lines.”

In Europe, consider Mediq, a specialty distribution business that helps individuals with chronic diseases live and manage their own conditions at home.

Advent leading up to 2020 was heavily focused on investing behind the IT backbone of the business, which had grown to a certain scale but faced limitations with its technology systems. With its tech investment completed, Allen said, Advent this year moved to build on the back of that IT platform, purchasing the UK’s H&R Healthcare.

Bloomberg in August reported Advent was mulling a sale of Mediq.

Six other healthcare platforms have announced acquisitions this year, including pharma services provider BioDuro and healthcare data analytics business Definitive Healthcare. 

Never waste a crisis

One silver lining of the remote environment: disruption in business models have exposed inefficiencies and caused certain trends to accelerate in a major way.

“The big game changer is the real forced adoption of technology, which has always been a little bit slower,” Allen said.

Telehealth in particular has jumped to the front of the line, Maldonado said. “There’s been this pitched battle between doctors and payers and other constituents in the healthcare system around ‘should we, shouldn’t we telehealth?’ I mean, now it’s in the rearview mirror,” Maldonado said. “We’re not going to put that genie back in the bottle.”

AmWell and Teladoc aren’t alone in trying to find effective business models that allow people to connect with doctors, Maldonado went on. While potential targets may not be “big businesses”, the investor said, some opportunities may present possibilities for chunky equity checks due to the growth profile. “We’re mining a little deeper there as well,” he noted.

Technology disruption has also been present among contract research organizations (CROs), which help drugmakers run their clinical trials more efficiently. As the covid environment left many unable to access physical clinical trial sites, the value of decentralized or virtual trials has been validated, Maldonado said.

“This is not a new trend; this is a trend in which quite a bit of venture capital has already poured.” But, he continued, “I think it’s going to accelerate the trend in a way where there could be deal-making opportunities for funds at our scale.”

Maldonado and Allen both have a deep familiarity with pharma services – sitting on the board of Syneos, a publicly-traded CRO and pharma commercialization business. Syneos Thursday completed its acquisition of Synteract from Amulet Capital Partners.

Syneos, for its part, very quickly pivoted to virtualized doctor-detailing – the process of sales reps educating physicians on different pharmaceuticals. And in fact, Maldonado said, “they are finding it may be a more effective way to do it.”

Lessons learned

With a second wave of lockdowns already underway, Advent takes with it wisdom gleaned from the first.

In Europe, Advent-backed generics business Zentiva continues to carry a little extra inventory to make sure it’s well-placed for any supply chain disruption, Allen noted.

In North America, covid has forced certain businesses to dramatically improve labor management processes and staff productivity, Maldonado said. ATI Physical Therapy and AccentCare are two such examples.

“If the [patient] volume is disappearing, you have to get more efficient,” Maldonado said. “I think that’s a permanent benefit; I see it in both companies where we will run tighter and more efficiently as a result of what we just had to go through.”

Entering Q2 and Q3 2021 and the 12 months beyond, Allen expects an already strong pipeline is building out further in one particular segment.

“The pressure on the large cap [drugmakers] is accelerating their own transformation, and I think we can all really see a quite interesting pipeline of non-core divisions being lined up for divestiture,” Allen said. “We’re trying to make sure we’re on our toes as they become transactable.”