Blackstone makes a people move that reflects a big bet on healthcare

Good morning, Hubsters. MK Flynn here with the Wire.

We’ll kick things off today with some news I broke earlier this morning about a promotion at Blackstone that reflects the firm’s increasingly large bet on the healthcare sector.

It’s another sign that 2023 is primed for big healthcare deals.

We’ll also take a close look at MiddleGround Capital’s recent acquisition of Megatech, a manufacturer of specialized engineering parts.

Here’s my scoop:

Universe of opportunities. Blackstone has named Anushka Sunder to the new position of head of healthcare for private equity North America, PE Hub has learned.

Effective in January, the move reflects the New York firm’s increasingly large bet on the healthcare sector, as well as a promotion for Sunder, whom PE Hub and Buyouts featured in our 2021 Women in Private Equity coverage.

“Healthcare is an important sector focus for our corporate private equity team led by Anushka,” Joe Baratta, global head of private equity, told me. “We have focused on pharma services, essential healthcare products and the life sciences value chain. We will continue to be very active in this core investment theme.”

With many costs to consumers considered nondiscretionary and therefore recession-resilient, the healthcare sector is expected to generate a lot of dealmaking in 2023.
Sunder sees additional opportunities in today’s market that Blackstone is well positioned to seize, given its size, resources and experience in the sector.

“For private companies today that may have been looking to an IPO as a form of exit and monetization for the current shareholder base, that exit pathway is, at a minimum, pushed out a bit,” Sunder said in an exclusive interview. “And so, if someone is looking for liquidity, or a mark, or support for scale M&A, or even a partial monetization, I think that universe of opportunities – especially at scale, where there is not a robust field of 10 to 15 sponsors that can transact – becomes a potential opportunity and entry point for certain high-quality businesses.”

Sunder pointed out that even Blackstone’s existing healthcare portfolio “is not necessarily obvious assets that existed in their current form, previously owned by a sponsor. Medline was family-owned. Precision Medicine was founder-led and had investors alongside them. HealthEdge has been a buy-and-build, where we started with one asset and have fundamentally transformed that business in the last three years through strategic M&A.”

Fast-track. Sunder joined Blackstone in 2013 and was promoted to partner in 2021, faster than the typical nine to 10 years it usually takes, explained Martin Brand, head of North America private equity and global co-head of technology investing.

Pointing to the Precision Medicine deal, Brand said: “It’s a real testament to Anushka and her leadership to be able to source transactions like this that are not the run-of-the-mill – unlike say a roll-up, where you buy a bunch of popcorn stands, slap them together and hope somebody else will pay more for it.”

“Speak up,” Sunder advises those who want to get ahead in private equity. She recalled a moment early in her career when a comment she made in an investment committee meeting prompted then-president and COO Tony James to drop by her office and encourage her to keep participating.

As she said: “In order for people to know what you think and how you think, you have to be able to articulate the work you’ve done.”

Coming up. In March, we’ll publish the 2023 edition of our Women in Private Equity coverage.

We’ll feature 10 “rockstars” of PE, and we’ll also catch up with some of the folks we’ve covered in the past, including Thoma Bravo’s Tara Gadgil, Apollo’s Christine Hommes and TPG’s Katherine Wood.

Check out PE Hub and Buyouts on the first of March.

High precision. Rising demand for specialized engineered parts in North America attracted MiddleGround Capital, a Lexington, Kentucky-based mid-market private equity firm, to acquire Megatech, a Québec-based manufacturer, in a deal announced in January. To find out more, PE Hub’s Obey Martin Manayiti spoke with Marty Sjoquist, a director on MiddleGround’s investment team.

Founded in 1992, Megatech focuses on computerized numerical control (CNC) for the machining industry. The company leverages simulation, 3D visualization, analytics and collaboration tools to produce a wide variety of highly-complex, highly-precise, low-volume engineered parts for a range of applications, including optics and photonics, robotics and medical.

Megatech fits in well with MiddleGround’s investment thesis on Industry 4.0 manufacturing (which involves new technology, including artificial intelligence and machine learning), Sjoquist said.

“Megatech is serving customers in growing end-markets, and as technology advancements continue to occur, these customers will continue to need more complex parts with new geometries that require the types of machining expertise that Megatech can offer,” Sjoquist said. “We think there is an attractive organic growth story in addition to the M&A strategy that we are planning to execute on.”

The industry is also fragmented, which presents an opportunity for consolidation. “When you look at the level of fragmentation and the structure of the market, there are a lot of these single-facility players that focus on low-volume, complex parts, but it’s hard for them to get to real scale just organically.”

There are a lot of niche players in the industrial manufacturing space for low-volume engineered parts, but most of them just focus on one technology, according to Sjoquist. The strategy with Megatech will be to build a diversified platform with a set of manufacturing technologies that can provide a suite of services for many customers.

That’s a wrap for today. Obey will be back tomorrow with Friday’s Wire, including a fresh deal roundup, or “listicle,” as we like to call them.

I’ll see you back here on Monday.

Happy dealmaking,

MK