Uri Geiger is managing partner and founder of Accelmed, a lower mid-market private equity firm targeting buyout and non-control transactions in commercial stage HealthTech companies.
Geiger, once a major in the Israeli air force, worked for much of his career as a healthcare executive and was most recently CEO of Exalenz Bioscience. He is also a founding partner of Dragon Variation Fund, one of Israel’s first hedge funds.
Accelmed invests in HealthTech across popular segments including medical devices, diagnostics, digital health and healthcare services, but the firm comes with unique characteristics – both in terms of the types of companies it backs and its team on the ground in Israel.
The Aventura, Florida, firm’s second buyout fund closed in March at $400 million, more than 3x the size of its debut vehicle. The firm Monday announced the appointments of Eric Tansky as general partner and Stephen Rubin as partner, following recent investments in TearLab, NeuroPace (which recently went public) and MedMinder.
How does Accelmed aim to target companies that are not of interest to other buyout funds?
The reason why we find ourselves in most situations in non-competitive deals is we are very industry focused.
The segment in which we play – intersection of healthcare and technology – is by definition a narrower sector than the broader healthcare industry. But more specifically, we are looking at relatively small companies. Our companies are usually between $20 million and $50 million in revenue size; the minimum is $20 million, and it could be higher, usually with negative EBITDA when we go in.
Most buyout funds will look at larger companies with larger checks, and also with positive EBITDA. By definition, our LPs say we cannot leverage – that’s something I insisted. It provides more risk. We’re looking at small companies usually challenged by capital structure, weak management or a product portfolio that needs to be rejuvenated.
Challenged companies with negative EBITDA are not appealing to the growth fund that’s looking for a strong growth profile and it’s far too small for a buyout firm.
Even if a buyout fund believes, ‘Wow, that can be an interesting transaction,’ the check size that we pay is on average $30 million; $80 million is the maximum we’ll pay. We try to find partnerships with either existing ownership, or in certain situations, with debt holders who convert the debt to equity.
We usually [commit] about three partners to each deal. To put three partners for a $30 million check, even if you are a billion-dollar fund, it doesn’t move the needle.
When you combine all of those characteristics, it makes it highly unappealing for most funds.
How does Accelmed leverage its roots in Israel, where the firm has three people focused on sourcing add-ons?
The core [of our thesis] is to find the commercial platform [in the US] and then to make the changes required, both in terms of structure and top-line growth.
Part of this is through buy-and-build. Israel plays a significant role in that, but it’s not exclusive to Israel. We recently signed a term sheet to acquire an Australian company into one of our portfolio companies.
Israel is certainly unique by being a very entrepreneurial society. There’s a lot of innovation in technology and healthcare. Having the team on the ground in Israel looking for add-ons certainly sets us apart from other buyout funds and venture funds that operate in Israel, but usually not with a direct presence. There is no other US buyout fund that has a real presence in Israel.
Israel has become a source of capital for funds. Some funds have placed one guy just to help bring Israeli institutional money, but there are no deal teams on ground for any other fund. By having our model well-known, we get the deal flow and have done a number of transactions in Israel. We can leverage Israel more efficiently than others.
Why not invest directly into new platforms in Israel if you have such a high degree of connectivity to the country’s technology ecosystem?
It’s hard to invest in something in Israel that doesn’t exist. Most companies in Israel are products. There are a few publicly traded companies that trade here, but by and large, Israel is a startup nation.
They don’t have platform companies; they have a lot of technology, but not the commercial knowledge and size.
In HealthTech, most Israeli companies lack managerial skills, sufficient capital to support growth. There are about 150 new Israeli HealthTech companies created every year and many of these companies can’t get to market.
What HealthTech themes are you most excited to invest behind with your new fund, and how does your recent activity reflect that?
We’re trying to invest in or look into how to improve the life of Medicare patients at their home in a normal environment, rather than taking them to the clinics or to the nursing home. Telemedicine is one way, but it’s much more than that.
We’ve just acquired the control of a tech-enabled service company in Boston (Medminder, an automatic pill dispenser).
It’s not just a service like Amazon Pharmacy, or PillPack as it used to be named. MedMinder has technology placed at the patient or customer’s home targeting relatively older patients with chronic diseases who consume more than five drugs a day. These are complex situations that need to be managed. A lot of data shows that lack of adherence results in more costs to the healthcare system.
MedMinder alerts can connect to any connected device, and if you don’t take your medication, it [notifies] the caregiver and it also connects to our pharmacy, your family and doctors. With technology, sensors and cameras, it observes if the patient is taking the drug at the right time… and helps to keep the patient without need for a nurse, certainly without need for a nursing home.
And then, we’re looking for more traditional [opportunities] like neuro-degeneration disease around the brain, which we believe is a frontier. NeuroPace as an example addresses epilepsy but there are many others that can be resolved. Cancer is mostly around a pharmaceutical agent, but we believe a solution for Parkinson’s, Alzeimer’s, epilepsy and the like is more around the device or tech sector, so that’s another area we are focusing on.
Were any Accelmed deals created or accelerated as a result of the pandemic?
We saw ample opportunities at prices that we hadn’t seen before. Unfortunately for PE, not the citizens of the world, the pandemic was too short.
From mid-March of 2020 until June, we were able to close two transactions which we had been working on for a long time. When the pandemic hit, the debt holder became really nervous, and that enabled us to be able to close transactions at valuations that are hard to get elsewhere.
We acquired our position in NeuroPace based on a $20 million valuation for the company. Fast forward eight months later, it’s at a [nearly] $600 million value. You cannot do that unless there is something so extraordinary like a pandemic, which held other funds from committing capital to new companies and made the company trip on debt covenants.
We were also able to take private a company like TearLab (an ocular surface diagnostics provider), which had traded at its peak at a hundreds-of-million-dollar valuation, and at $1 million, that’s what we paid to take it private.
The deals that we did later were already at the more normalized valuations and now valuations are even higher than pre-pandemic. The public markets of course have some effect on the private market as well.