Frazier Healthcare Partners has raised its second pool of capital focused exclusively on growth buyouts of profitable lower-mid-market healthcare companies.
Frazier Healthcare Growth Buyout Fund IX collected $780 million, surpassing its $700 million target. Investors included existing and new limited partners, including endowments, public/private pension funds and financial institutions.
The GP commitment will represent 4 percent of the fund’s total size, Managing Partner Nader Naini said.
The fundraising comes about two years after Frazier raised its first dedicated growth buyout vehicle, Fund VIII. The fund closed in March 2016 at its hard cap of $525 million.
Fraizer’s new growth buyout fund will seek investments across healthcare services, pharmaceutical services, medical products and distribution, targeting companies with revenue of $50 million to $500 million and Ebitda of $5 million to $50 million, Naini said.
The firm expects to write equity checks of about $25 million to $100 million per deal, though Naini said that figure can grow dramatically if its LP base chooses to co-invest. The fund ought to support 10-plus platform investments, he said.
Frazier’s first growth buyout vehicle has invested in seven platform companies with the possibility of an eighth, injecting an average of about $63 million per deal, Naini said. Average investment sizes are expected to be closer to $70 million in the new fund, the executive said.
Naini leads the growth buyout team out of Seattle, alongside GPs Nathan Every, Brian Morfitt and Ben Magnano.
In a healthcare universe where competition remains robust and prices expensive, Naini said, Frazier proactively looks for circumstances in which it can unleash value or bring a unique angle.
The team executes a thesis-driven strategy tested by the operating partners and executives with whom it partners, the investment professional said.
“We tend to invest in companies that others don’t want to invest in,” Naini said. “I wouldn’t call them turnarounds, but companies that have some hair on them.”
Generally speaking, Frazier approaches healthcare investing through the lens of value-based care, seeking companies that improve the quality of care while bending the cost curve, Naini went on.
Frazier has invested two-thirds of its funds in non-government-based reimbursed companies, mitigating one of the inherent risks in healthcare investing, he said.
“Wherever you see significant unit volume growth … you can rest assured that there will likely be reimbursement headwinds coming,” Naini said. “We try to stay away from those areas.”
While Fund IX marks only its second growth buyout vehicle, Frazier differs from its peers in that it has focused exclusively on healthcare since its inception about 27 years ago, Naini added.
In 1991, when the firm was founded, sector-specific funds were rare because LPs wanted diversification, he explained. In other words, having been able to build such a long track record and network of executives has proven valuable.
“We felt that healthcare was sufficiently complex and that developing a team of focused domain experts in healthcare investing made a lot of sense,” Naini said. “As we’ve evolved the market has gotten there. Everyone is a specialist.”
The firm’s life-sciences team, based in Menlo Park, California, closed Frazier Life Sciences IX, its second dedicated life-sciences fund, at $419 million in November.
Fund IX is actually Frazier’s 11th fund overall. The firm’s first eight funds invested in both PE and venture capital. Subsequent vehicles pursued the firm’s PE and VC investment strategies through separate funds.
Fund IX brings Frazier’s total capital under management to more than $4.2 billion.
Action Item: Get in touch with Frazier’s Nader Naini at firstname.lastname@example.org.
Photo of Nader Naini courtesy of Frazier Healthcare Partners.