Happy Fri-yay, Hubsters! Aaron here on the Wire. Did you miss me last week? Well fret no more, I am back.
Healthcare dealmaking. As you know, I am all about healthcare investing. I had an interesting email exchange with Bain Capital’s Devin O’Reilly about why now is a good time to invest in healthcare IT and PIPE deals.
“While some may look at this as a ‘wait and see market,’ we think this is a really interesting time to leverage our distinct capabilities, such as our life sciences team and our deep experience in HCIT,” explained managing partner O’Reilly. “We also think there is an opportunity to execute more creative investment structures. such as for Private Investment in Public Equity (PIPE), where we can offer distinct win-win opportunities to invest in high-growth businesses at more compelling valuations.”
He noted that there is a very interesting subset of public healthcare companies that require additional capital – whether to support growth initiatives or finance complementary scale acquisition.
“PIPEs provide a compelling alternative to traditional debt or take-private equity deals where we can offer public companies the opportunity to partner with a value-added investor who can help the business navigate macroeconomic trends and strategic growth opportunities,” he said.
One example of this, he explained, is when Bain invested in Surgery Partners in 2017. The company is an operator of outpatient surgical facilities.
“Our investment enabled Surgery Partners to acquire a complementary player in the industry, National Surgical Healthcare, while also providing the opportunity to purchase an equity stake from Surgery Partners’ previous sponsor,” O’Reilly said. “That theme of financing logical acquisitions is a key part of our overall strategy that worked well in this case. At the moment, we are particularly focused on PIPE investment opportunities in Life Sciences companies –partnering with our Life Sciences team provides a unique set of capabilities and experiences to draw on when evaluating clinical data and rapidly evolving trends in therapeutic end-markets.”
He also said that he is seeing “significant opportunities” for add-on acquisitions within Bain’s portfolio companies – particularly in life sciences and HCIT companies including athenahealth, LeanTaaS, PartsSource, and Zelis.
“Smaller, perhaps less capitalized businesses may welcome the opportunity to join a larger platform where they can provide some specific product or service advantage or offer penetration and existing client relationships in a new market,” he said.
Another interesting note is that Bain has been spending significant time with the firm’s colleagues in Europe and Asia.
“Many of these growth healthcare businesses are looking to expand overseas and appreciate the chance to lean on local teams across the globe who have functional expertise in their subsector,” he said. “Working with our team in India, we saw the opportunity to invest in digital IT services leader CitiusTech, and in Japan with Evident, a world-leading manufacturer of microscopes for life science and industrial applications, which was a carveout from parent company Olympus.”
O’Reilly said today’s market offers opportunities “to lean into complex industries like life sciences and HCIT, global expansion opportunities, and creative investment structures. This is a great chance to find value where we can leverage our distinct capabilities.”
I profiled Bain’s healthcare investment strategy earlier this year.
Going digital. Speaking of healthcare spotlight profiles, the latest in the series just came out late yesterday. In this edition, I spoke with FTV Capital’s Alex Mason.
Based in San Francisco and founded in 1998, FTV has raised $6.2 billion. The firm invests in three sectors: enterprise technology and services; financial services; and payments and transaction processing. Many of the subsectors the firm invests in are in the healthcare industry.
“At FTV, we’re excited about all things digital health, which can be software to providers, for example,” Mason said. The “massive” amount of paper still in healthcare, the inefficiency of payment transfers and payment modalities are big opportunities for the firm.
“There’s a really interesting business called Luma that we’re involved in, which is really pushing the boundaries of digital patient success and digital patient engagement,” he explained. “We see a lot of parallels and use cases if you think about FTV investing in enterprise technology companies and other end markets, similar to healthcare, just going through massive digital transformations.”
And now for news outside the healthcare sector.
Competitive environment. PE Hub’s Obey Martin Manayiti caught up with Omar Pringle, a partner at law firm Morrison Foerster, to get his thoughts on the dealmaking environment. Pringle works on buyouts, private equity investments and M&A, both domestic and cross-border. His clients include sponsors, corporates and family-owned businesses. Here’s an excerpt from the interview:
Are outside pressures such as inflation, rising interest rates and potential recession pushing down valuations? How are PE firms reacting to this?
Well, I think you start with what has been a very competitive environment for assets for private equity in the past few years, and last year in particular. That competitive environment led private equity to start considering the public markets much more seriously and we saw a trend towards take-privates last year. The factors you mention ought to continue that trend, with private equity firms seeking to be opportunistic in the sense that a good business may be trading at a lower price than a private equity firm might perceive to be its inherent value.
Certainly, we have seen private equity firms seeking to be opportunistic in this climate in that manner. But it’s not that simple. Public companies and their boards are also quite aware of the fact that this is an opportunistic market. They may also view that their current trading price may not reflect their inherent value or even if it does, their value in this current environment may not reflect the long-term value of the company.
The future of PE. For private equity, “pain is likely; financial crisis, maybe not,” writes Graham Bippart, in an insightful op-ed at Private Funds CFO.
“Investors are in for a long-overdue reunion with more pedestrian performance and other adverse outcomes of the evolving economic situation. The coming PE-induced financial crisis predicted by some is harder to see,” he writes.
“It is true that private equity has experienced unprecedented momentum and success since the global financial crisis. It is also true that the extent of that momentum and success has been fundamentally predicated on low interest rates and an ocean of central bank liquidity.
“Against that backdrop, gone will be the days – a decade’s worth – during which nearly everyone managed, somehow, to achieve ‘top quartile’ results. That can’t continue.”
For more, see Graham’s opinion piece.
Before I wrap up, I just want to give a shout out to THL Partners, for hosting a fantastic healthcare- focused dinner for members of the media, including PE Hub editor-in-chief MK Flynn and me, at Le Pavillon in New York. Joshua Nelson, managing director and head of healthcare vertical, Megan Preiner, managing director and a member of the healthcare vertical team, were there, along with the CEOs of THL portfolio companies CSafe Global and Adare Pharma. It was a night full of great conversation and delicious food! Wishing everyone a wonderful weekend. I will be back next Friday – same time, same station. And MK will be back with the Wire on Monday.