Consonance Capital Partners closed Fund II in under three months in the midst of the pandemic, which speaks to investor appetite for continuity and a playbook that builds healthcare businesses without financial engineering.
The New York private equity firm raked in $856 million for its sophomore fund, closing on April 8 at its hard cap.
The healthcare specialist’s debut fund, which closed in 2014 on its $500 million hard cap, generated a 5x return to date, according to a source familiar with the matter. Fund I is more than 80 percent invested, the source said, with 12 acquisitions, including seven platform investments.
Consonance’s second vehicle will target eight to 12 platform investments, seeking to invest in lower- and middle-market healthcare businesses generating between $25 million to $500 million in revenue, said Benjamin Edmands, managing partner and co-founder of Consonance.
With roots dating back to the 1980s, the Consonance team has remained intact for many years.
Edmands leads Consonance alongside co-founders Mitchell Blutt, Stephen McKenna and Nancy-Ann DeParle, all of whom spun out of JPMorgan Partners and its successor and predecessor entities, launching the new firm in 2005.
Blutt, managing partner and CEO of Consonance, founded the healthcare practice group within JPMP in the 1980s.
Consonance Private Equity II will remain focused on growth equity, leveraged buyouts and recapitalization transactions, but in the current environment also will look at good companies with liquidity concerns, Edmands said.
With most of its fundraising committed before the pandemic escalated, the vehicle’s LP base comprises many existing Fund I investors.
In the wake of a challenging backdrop that has largely shut down debt markets, a strategy ingrained at Consonance pre-crisis ought to position the firm well: That is, its history of generating returns without leveraging up its companies.
“Now that we’re in this environment, not relying on third-party debt financing – in a lot of instances – is helpful,” Edmands said.
Case in point: Consonance in the near future expects to close its final investment out of Fund I using all equity, he said.
At Consonance, returns have always been driven by top line and EBITDA growth. Five of the seven platform companies purchased out of Fund I had no leverage at close and were financed with all equity up front, Edmands told PE Hub.
“We don’t rely on financial engineering,” he said. “It’s really about company building and trying to get the company strategically focused on value creation.”
Company building starts with identifying macro themes that are driving change across the healthcare industry, and then cherry-picking micro sub-sectors it believes will benefit from those larger trends, Edmands said.
“We tend to focus on areas that we think are adding value to the system: they’re driving better outcomes, delivering higher quality [patient] care at lower costs or enabling greater efficiency in the system.”
Consonance often seeks to back companies that are going through some kind of inflection point, he said, “so that we’re able to help the management team, the founders – who are often the same – get the company to the next level.”
Notable Fund I exits included its December sale of Enclara Pharmacia to Humana, which sources at the time estimated valued the company in the $700 million to $840 million zip-code.
Another home-run investment for Consonance, a source familiar with the firm said, was Kepro. The provider of medical management and cost containment solutions was acquired by Apax Partners in May 2017.
Consonance is keeping close tabs on emerging trends amidst the public health crisis – whether that’s across the supply chain, logistics, workforce training or telemedicine.
“We’re looking at this through the lens of: How can we help out? Where does the system need help? And then, what changes to the healthcare system are happening that were catalyzed by this that we think are potentially longer-term trends?”
For example, in the current environment you might want to have more control domestically on the supply chain side, Edmands said. Elsewhere, he said, the firm is considering how the healthcare workforce will require new skills over the next couple of years.
One sliver of healthcare seeing an immediate boom in interest amid life under quarantine: telemedicine.
This is already being reflected within Consonance’s portfolio. At Summit Medical Group-CityMD, for instance, 70 percent of its business has transitioned to telemedicine, from about 2 percent pre-crisis, Edmands said.
“We’re not saying we’re going to stay at that level, but we think there is going to be a fundamental change to how people use healthcare,” Edmands said.
The war against covid-19
SMG-CityMD also is one of two Consonance companies directly involved with the fight against the pandemic.
Consonance last year invested in the company, which was created through the marriage of Warburg Pincus-backed CityMD, the New York metro area’s dominant urgent care chain, and Summit Medical Group, one of the largest independent specialty groups in the country.
Situated in a high-impact area, the provider group continues to work to meet the huge increase in demand for covid-related care, Edmands said.
Elsewhere, Bako Diagnostics, backed by Consonance in January 2016, was quick to redeploy its R&D staff and pivot to address crisis needs.
Having traditionally focused on the podiatry and dermatology end-markets, the lab testing company took its expertise in PCR (polymerase chain reaction) and re-purposed that technology to a new end-market in need.
Bako developed and received approval for a covid-19 test in a matter of weeks, and is now meeting unmet demand locally and nationally, Edmands said.
Whereas PCR tests to see if an individual has the virus, Bako is separately developing a serology test to identify antibodies, a proxy for covid-19 immunity, he said.
“Testing is going to be a huge need and a huge component of our getting back to work and getting the economy going. We really need to have much more widespread testing,” he said.
Action Item: Check out Consonance’s latest Form ADV
Update: This report has updated with the correct spelling of Nancy-Ann DeParle’s last name.