“Our goal is not to be the largest private equity firm in the world; it is to be the most reputable owner of companies,” said Eric Liu, partner, head of North American private equity and global co-head of healthcare at EQT. “By investing in market leaders, it enables us to implement policies that have impact beyond the individual companies in which we invest.” PE Hub interviewed Liu for our ongoing series profiling private equity firms investing in healthcare.
Prior to joining Stockholm-based EQT Partners, Liu, who is based in New York, was a principal at Warburg Pincus, responsible for PE investments in the healthcare industry. Previously, he worked in private equity at Blackstone and in venture capital at Draper Fisher Jurvetson. Liu is a member of EQT’s Equity Partners Investment Committee.
“We first entered the US in 2015 and have since then become widely regarded as one of the most active and successful healthcare investors in the US private equity market,” said Liu. “If you look at Europe, we’re arguably the most active.”
“While we have been active doing new investments, we have also been very active exiting investments during the last few years,” he said. “This is important so that when a downturn comes, our portfolio will still be young, and we will not be managing 10-plus-year-old investments.”
When asked to describe the firm’s investment thesis, Liu said: “We look for good companies in good markets – we define a ‘good market’ as one with high growth, one with good dynamics, such that there is a healthy profit pool for all industry participants, or one where the industry is inherently doing something good for society. Then, we back ‘market leaders,’ which could mean the largest company, the most innovative company, or the most profitable, but these things tend to correlate.”
Liu said that the firm differentiates itself from other firms in three ways.
“The first is we have a very focused sub-sector approach within healthcare,” he said. “We do not invest in healthcare service providers like hospitals, nursing homes or physician practices, which are approximately 50 percent of the market, and which are the bread and butter of what other US healthcare private equity firms do. The sub-sectors we like are med tech and life science tools, pharmaceutical services and healthcare IT.”
Corporate governance is the second differentiator.
“When most private equity firms acquire a company, they replace the entire board of directors with people from their firm,” he said. “Our approach is entirely different – we only put one or two EQT people on the board. The rest of the board, including the chair, is comprised of independent people from industry. Sometimes these are people we have known for a long time, and sometimes they are individuals new to our network.”
Liu continued: “At our boards, the CEOs get input from a diverse group of people who have led real companies, who have managed lots of people, and who have experience selling to that particular customer base. Our CEOs like this setup. But it is also attractive to the board members, who are mostly retired executives, who do not tend to have financial needs and are instead focused on spending their time where they can have real impact. Our board setup is unique, and so we have been able to recruit very high-quality people, even when we were not yet that well-known in the US.”
The third differentiator is how the firm behaves in auction processes. Most firms submit first-round bids on a regular basis to learn more about a company, and then decide later if they want to do the deal, Liu said. EQT does things completely differently.
“We’re much more selective upfront about when we engage,” he said. “On average, we have submitted only three or four first-round bids per year, versus our peers, who might submit 15 to 20 per year. The reason for this approach is that when we were first starting in the US, I was still a new partner, and EQT was building its reputation in the US – and the reputation I wanted to establish was that of a firm that followed through on its commitments.”
As a result, EQT only pursued situations where the firm had done a lot of pre-work, where the firm thought it would be a better owner, and where the firm was committed to paying the market clearing price.
“Almost every time we have submitted a first-round bid, we have eventually submitted a final binding offer,” Liu said. “And our conversion rate on those offers has been approximately 60 percent, which is very different than most other firms in the private equity industry.”
“From a healthcare dealflow perspective, this year has been interesting,” Liu said. “Obviously, the IPO window is closed, but the credit markets, until last month, were still open. Valuations in the overall equity markets are down this year, but people perceive healthcare to be a defensive sector. There are a lot more people investing in the sector these days than there have been in the past.”
He added that he has been “avoiding deals that are too large,” because the only exit path is a public offering, which is not a viable option at the moment. “The challenge in the $1 billion to $2 billion enterprise value range is that there are so many firms that can write a check of that size, so the competition can get quite intense.”
Liu noted that there are “a lot of large pockets of uncertainty right now.” He listed among them: “Public equity markets correction, inflation, Russia-Ukraine, for example.”
“For the quality of asset we tend to pursue, the valuations have not dropped in the private equity markets; they are still at all-time highs,” he said. “But it is unclear how long this disconnect between private and public market valuations can persist.”
“I’ve been working in the private equity industry since 1998 and every single year, my partners complain about how hard it is to invest right now, and how things were easier a few years ago,” Liu said. “And it is also generally known that certain vintages of private equity deals are better than others on average.”
Timing, of course, is everything.
“The right strategy as a private equity investor is to constantly invest and constantly exit,” he said. “There are good deals done in every market. When markets are choppy, it just means you have less margin for error. But if you invest in good companies that you can improve through differentiated value creation strategies, you can generate superior returns for your investors over time. That is what we try to do.”
“Our exit process essentially looks like the investment process, but in reverse,” he said. “The process is rigorous and consensus-driven, and notably, the decision is not delegated to the deal partner. I actually got rejected at the initial Exit Committee the last time I tried to start an exit process for one of my portfolio companies. It was frustrating at the time, and I had to do a ton of extra work to eventually get approval to start the sale process, but we ended up generating $2 billion of incremental equity value versus what may have happened if it was my decision alone.”
Founded in 1994 and headquartered in Stockholm, EQT is a private equity firm specializing in buyouts, expansion capital and infrastructure investments. The firm is a global investor, focused on Northern and Eastern Europe, Asia and the US. The firm acquires or finances high-quality, market-leading, mid-market companies in industries with strong growth potential.
EQT and Verdane created Forsta in March 2021 by combining EQT-owned FocusVision with Verdane-owned Confirmit. EQT and Verdane sold Forsta, a provider of patient and customer experience and market research software, to Press Ganey in a transaction that closed in April 2022.
EQT acquired Aldevron, the leading global manufacturer of plasmid DNA, mRNA, and proteins used to develop and manufacture genomic medicines, in October 2019. EQT sold Aldevron to Danaher Corporation in a transaction that closed in August 2021. EQT’s sale of Aldevron won Buyouts’ 2021 Large Market Deal of the Year award.
EQT acquired Certara, a biosimulation company which produces modeling software used in drug development, in August 2017. Certara went public on Nasdaq in December 2020.
EQT acquired Press Ganey, a patient experience survey and analytics company, in October 2016 and sold it to a consortium of funds managed by affiliates of Ares Management Corporation, Leonard Green & Partners and other co-investors in a transaction that closed in July 2019.
In February, EQT completed the acquisition of LSP, one of the largest European life sciences venture capital firms, creating EQT Life Sciences and expanding EQT’s ability to support companies at the forefront of innovation in healthcare.
In March, EQT acquired cancer care provider Icon Group. (See below for more information.)
EQT’s healthcare portfolio highlights
(Dates refer to initial investments)
Cerba: A provider of routine, specialty and research medical lab testing in EMEA and a major player in medical diagnosis. The company assesses risk of disease development, detects and diagnoses diseases earlier, and optimizes effectiveness of personalized medicine. (June 2021)
Galderma: A global skincare company offering medical and consumer skin health solutions through three business units: aesthetics, prescription and consumer health. Operated as Nestlé Skin Health as a subsidiary of Nestlé before being carved out by a consortium led by EQT. (October 2019)
Icon Group: An integrated cancer care provider operating over 45 clinics and producing more than 1 million personalized cancer drug infusions per year through its specialized cancer compounding business. (March 2022)
IVC Evidensia: A veterinary services provider in Europe with more than 1,700 clinics and hospitals and 25,000 employees across 12 countries. (Acquired Evidensia in December 2014; merged with IVC in May 2017)
Blikk and Meine Radiologie: EQT combined these two German radiology players to create a radiology platform. (September 2021)
Parexel: A global clinical research organization that supports pharma and biotech companies in managing clinical trials. EQT partnered with Goldman Sachs to acquire Parexel for $8.5 billion in one of the largest-ever private equity buyouts in the U.S. (November 2021)
Recipharm: A global pharma contract development and manufacturing organization providing full-service offerings to leading pharmaceutical and biotech companies. (February 2021)
Schülke: A provider of infection prevention solutions to the healthcare industry with more than 130 years of experience, protecting lives worldwide by providing critical products for global disease prevention. (August 2020)
Waystar: A revenue cycle management platform that currently supports more than 500,000 healthcare providers, 750 health systems and hospitals, and 5,000 payers and health plans. (October 2019)
WS Audiology: A producer of hearing aids and accessories in terms of volumes with more than 170 years of experience, over EUR 1.7 billion in revenue, and over 10,000 employees. EQT created WS Audiology through the merger of portfolio company Sivantos and hearing aid manufacturer Widex. (February 2019)