Fragmented markets, creative expansion fuel OEP

One Equity Partners’ investment in AdaptHealth, expanding the company’s offerings from sleep apnea to diabetes, is a perfect example of the firm’s creativeness.

“Big picture, we think: where can we find fragmented markets in healthcare that would benefit from consolidation? Everything we do centers around buy-and-build growth,” explained Greg Belinfanti, senior managing director at One Equity Partners. “We’re trying to drive growth through transformative acquisitions. We are trying to take companies that have, roughly speaking, $40 million of EBITDA and double them very quickly through acquisition.”

PE Hub spoke with Belinfanti for our ongoing series profiling PE firms that invest in healthcare. He has been with the firm since 2006. He discussed the firm’s strategy and how it relies on bolt-on acquisitions and expansions – either in geography or products.

One of the bigger themes OEP sees is the shift of care out of institutional settings and into homes.

“We think there’s many different ways to invest behind that shift,” he said. “For example, we invested in Simplura, which is a provider of home care aides in several different states. But a company like Adapt Health, which the firm is also invested in, distributes products to people and becomes an increasingly important provider as care moves out of institutional settings.”

Eroding economy

“All of our companies are obviously focused on cost of debt, but it doesn’t materially impact our investment decision process,” he said. “One of the reasons for that is that our companies are not very levered. Our portfolio, on average, is about 3.5x levered and if you look at some of the companies in our most recent fund, OEP VIII – React, for example, that company is below 3.5x. One way we’ve addressed the inflationary, higher cost of capital environment is by moderately levering the companies.”

OEP’s experience in tough economic environments certainly helps.

“As a firm, we have a lot of senior people who have lived through two or three of these cycles and have seen rising interest rates,” said Belinfanti. “We try to make sure that the companies are levered responsibly to weather a recessionary environment.”

“In these difficult times there’s a lot of opportunity,” he said. “You haven’t seen it yet, because it’s still early days, but I think over time you’ll begin to see that portfolio companies that have liquidity and access to capital and balanced capital structures will be able to go on the offensive; acquiring companies at attractive values in difficult times.”
Through the good economic times and the bad, one core aspect of OEP is that the firm believes bolt-ons are core to growth.

“We’re constantly thinking how do we grow these businesses through acquisition,” Belinfanti explained. “If you look at OEP VIII – at InfuCare, which we bought in January, we’ve already done an acquisition; at React, we’ve done two acquisitions; and I expect our latest investment, Prime Time, before the year is done, we’ll likely do at least one acquisition which will be a meaningful size. That’s what’s driving us. And that’s what’s making this fun.”

What makes OEP different?

“What differentiates us is that we’re constantly calling on companies with an idea, helping managers and owners think about how to grow their companies,” he said. “We are not spending a lot of time in auction processes.

“We’re cultivating relationships with managers and owners, trying to partner with them and provide them capital for growth, Belinfanti said. “We are playing in segments of the market, which almost by definition are not as competitive because the businesses aren’t for sale and so other people aren’t spending time with these owners the way we are.”

Two examples of how cultivating relationships paid off for OEP. The first was with Adapt.

OEP was talking to the company before they went public, via SPAC. After it went public OEP continued the conversation.

“In 2020, they wanted to do the Solera acquisition at a time when the debt and equity markets were a bit troubled due to covid,” he said. “We were there and able to move quickly because we developed a relationship with them.”

Earlier this year, OEP invested in InfuCare, after meeting the company in January of 2020.

“We’re spending time with people cultivating relationships, cultivating ideas, helping them think through where they want to take their business, developing a road map for how we can partner with them,” he said. “I think that’s a large part of our competitive advantage in healthcare.”

Current deal dynamics in healthcare

“We are seeing more broken processes, more situations where sellers’ views of value aren’t matching with buyers’ perspectives on value,” he said. “As the public markets have come down, and debt is less plentiful, price expectations from the buyers’ perspectives have come down. There’s a mismatch between where sellers’ price expectations remain and where buyers’ price expectations are. I think that that’s true, broadly in intermediated, bank-led processes but not as true in situations that we’re digging into.”

The acquisition of Prime Time was a one-off dialogue with a seller.

“That’s a big hallmark of what we do,” said Belinfanti. “We’re partnering with founders and managers to grow their businesses. We’re still seeing opportunity because we’re partnering with people.”

Expansion examples

In 2015, OEP invested in Simplura – one of the companies in the nursing home transition and diversion and traumatic brain injury programs in New York.

“The home care market was still fragmented state-by-state and if we could create a regional champion, that would create a lot of value,” he said. “We took Simplura, which at the time was about 70 percent New York and we expanded in Pennsylvania, Massachusetts, Connecticut, West Virginia. By doing so, we created a regionalized company. By the time we exited Simplura it was less than 50 percent New York.”

In 2020, OEP did a PIPE into a public company called AdaptHealth, one of the largest suppliers of respiratory and sleep products for the home.

“We were providing them capital to drive growth of a new platform for diabetes, the delivery and assistance with setup and ongoing care of insulin pumps and continuous glucose monitors,” explained Belinfanti. “We spent a lot of time thinking about diabetes. Approximately one in seven adults will have diabetes or has diabetes or prediabetes in their lifetime, it’s a market growing at double-digits.”

Firm facts

OEP is a mid-market firm based in New York and was founded in 2001. The firm has approximately $10 billion in assets under management focused on the industrial, healthcare and technology sectors in North America and Europe. Since inception, the firm has completed more than 300 transactions worldwide. OEP was spun out of JPMorgan in 2015.

Acquisitions and exits

See below for details on recent acquisitions made by the firm.

OEP exited Simplura Health Group in September 2020 when it was sold to Providence Service. OEP first invested in Simplura, a home care services company providing the Medicaid population with home-health aides. During the roughly four-year hold period, OEP executed eight add-on transactions to the company and grew revenue over 90 percent.

Said Belinfanti: “70 percent of the assets that we’ve exited have gone to strategic buyers. Whether it’s healthcare, or any of the other sectors where we spend time, we are constantly asking ourselves the question, ‘For whom am I doing this?’ That provides us a road map for how to build the company.”

OEP’s portfolio highlights

(Dates refer to initial investment)

AdaptHealth: A provider of home healthcare equipment and medical supplies, including sleep therapy equipment, oxygen equipment and related chronic therapy services, CGM devices and insulin pumps and other HME medical devices and supplies. (May 2020)

AMT/Restorix Health: A wound-care management company offering services across over 230 outpatient clinics and at-home service offerings. OEP acquired AMT in August 2020 and then merged with Restorix. (March 2021)

Duran Weaton Kimble: A global manufacturer of laboratory and storage solutions for a wide range of scientific and technical applications. Duran Group was acquired in December 2014 and Kimble Chase was acquired by Duran. (September 2016)

Ernest Health: A provider of post-acute healthcare services in the United States. Ernest operates 18 inpatient rehabilitation facilities and seven long-term acute care hospitals with 978 total beds across 11 states. (May 2018)

InfuCare Rx: A nationwide specialty infusion therapy services provider for patients with complex conditions. InfuCare Rx provides a consistent, coordinated infusion experience for patients in the convenience of their home or alternate-care setting. (January 2022)

Prime Time Healthcare: A provider of contract-based healthcare professionals nationwide. Headquartered in Omaha, Nebraska, Prime Time Healthcare specializes in the placement of RNs, LPNs, CNAs and assorted therapy practitioners and professionals in facilities across all 50 states. (September 2022)

React Health: A manufacturer and distributor of respiratory management and sleep-therapy supplies, oxygen concentrators and equipment disinfection products. (May 2022)