It’s become glaringly apparent in private equity these days that there are some companies that are deserving of longer holds than what is allowed under traditional fund structures.
Those businesses may have a longer growth path than other companies, and require more time and attention to achieve that maturity. They also may be representative of longer-term trends in certain sectors that are still emerging.
To address this shifting perspective, firms have raised pools of capital with flexibility to hold assets for as long as necessary. BlackRock is one such firm, which closed the initial round of fundraising for its perpetual capital fund on $3.44 billion earlier this year.
BlackRock’s perpetual capital group, called Long Term Private Capital, agreed this month to acquire a majority interest in Transaction Data Systems from GTCR, which will retain a minority stake in the business. The company provides technology to pharmacies to improve operations, data analytics, patient engagement and ultimately, help drive better healthcare outcomes.
The pending deal concludes a sale process conducted by William Blair and Harris Williams. PE Hub first wrote on the adviser engagement in September, at which point sources placed EBITDA in the high $50 million range.
Keval Health, a boutique healthcare advisory firm, advised BlackRock on the deal.
Transaction Data Systems is an example of a company operating in a growing sector, healthcare technology, that is emerging and has a long way to develop. The company already has a strong foundation in its core business of using software to help pharmacies improve healthcare outcomes for customers.
“Sometimes value creation in an industry like healthcare where there are long-term trends, that doesn’t necessarily match up with a three-year hold,” said Colm Lanigan, head of Americas for BlackRock Long Term Private Capital.
BlackRock saw advantages to acquiring TDS through the perpetual capital fund. The flexible hold outlook gives management a much broader view of the growth path for the company. This means that rather than rushing to make improvements or growth acquisitions in the first year or two, management can choose the best opportunities even if they come after several years. The firm also does not use the maximum leverage available in its deals to help keep the pressure off management.
“If in year four they decide that there’s a major platform expansion they want to do, we’re still, because of our structure, completely open to that, and in fact inviting of that,” Lanigan said. “The strategy and structure … align so we can capitalize on these longer term trends in healthcare but not force them into a three-year or four-year window, and at the same time, keep a balance sheet that allows them to capitalize along the way.”
Growth plans for TDS include building out more functionality for the software and finding ways to use data more effectively for customers and all stakeholders in the healthcare ecosystem. “We think we have particular insights that will be helpful as we help build out that platform for the company … really helping them leverage each one of their strengths to expand their market and their value-add to all their constituencies,” Lanigan said.
TDS is BlackRock’s fourth investment. Others include family-run luxury fragrance business Creed; Authentic Brands Group, which owns a portfolio of 50 brands across lifestyle, sports, celebrity, entertainment and media sectors; and software provider Aquila Heywood.
BlackRock’s fund has the ability to recycle distributions and opens periodically for new fundraising. The initial round included more than 30 limited partners.
The BlackRock long-term team doesn’t go into a deal planning to hold it forever, Lanigan said. Rather, it evaluates each target company on whether it would make sense for a longer-term hold.
“We do go into a deal asking, ‘is this the type of business we’d be comfortable holding for quite some time,’” Lanigan said. “Does it have the hallmarks of a business that has longevity and persistence? That changes the way you underwrite a deal because you’re not looking at what are the two or three things I have to do to this business before I can get out of it. You’re looking at it as a longer-term value creation plan.”