Medline: H&F, Blackstone, Carlyle unite in $34bn bet on healthcare’s vital supply chain

Betting on the importance of healthcare’s infrastructure, three prominent PE firms back a secretive family-run company that has quietly proven a growth-machine in healthcare products distribution.

At first glance, distributing gowns and scrubs to healthcare facilities doesn’t look like a particularly sexy investment opportunity. Turns out, companies like Medline that get such products (and many others) where they need to be around the country are an essential utility of the healthcare system. 
 

Commanding a $34 billion enterprise value in one of the largest leveraged buyouts in history, Hellman & Friedman, Carlyle and Blackstone are joining hands to invest a majority stake in Medline, a healthcare products distributor that has quietly become a force with nearly several decades of family ownership. Also participating in the investment is Singapore’s sovereign wealth fund GIC.

With or without covid, acute care hospitals and other sites of care want and need a constant supply of low-complexity healthcare supplies — be it sterilized trays or exam gloves. The pandemic, if anything, elevated the importance around healthcare’s infrastructure and supply chain, including the reliability and efficiency of medical products distribution. As one source put it, “you don’t want multiple trucks from multiple vendors arriving each day.”

Medline’s secret sauce? The company is really good at logistics, one source said. With 550,000-plus Medline-brand and national brand products, Medline comprises more than 50 distribution centers worldwide, including 45 in North America, according to its website.

It has also been quietly taking share from other large vendors, sources said, with large public players Owens & Minor and the med/surgical division of Cardinal Health on the defense. Medline’s growing production of private label products helped fuel its gains, increasingly offering lower price points when compared with branded goods, one person said. That ultimately saves money for hospitals and Medline’s other customers, while also fueling its above average margins.

Sources said Medline generates more than $2 billion in EBITDA, with EBITDA margins in the last few years averaging 11 percent to 13 percent — materially higher than the large, well-known publicly traded medical products distributors. (Owens & Minor, for example, has margins in the low-single-digit range.) Top line grew to $17.5 billion in 2020, Medline said in its statement, which is up from $13.9 billion in 2019, according to its website.

People familiar with the sale process have told PE Hub in recent weeks they knew Medline was a good company, but “just how good” was largely unclear until it hit the market earlier this year and the investment community could finally look under the hood.

Medline is “one of the nation’s largest private companies that no one heard of,” as one source put it. “It’s one of the best growth stories of all time,” another said. 

The deal commanded a total enterprise value of approximately $34 billion, sources said, confirming an earlier WSJ report. According to PE Hub sources, that includes approximately $17 billion of debt.

Carlyle, H&F and Blackstone are set to own equal ownership stakes in Medline, sources added, with the Mills family remaining the single largest shareholder in the Northfield, Illinois-based business. The existing senior management team will remain in place.

More of the same

Medline is a growth play of a scale rarely seen by private equity. There’s nothing to fix or tear apart as seen with historic LBOs; rather, the firms in a joint statement indicated they plan to accelerate what is already a winning formula.

Founded in 1966, Medline’s roots date back to 1910 when A.L. Mills, the great grandfather of the current owners, started sewing butcher’s aprons in Chicago. Today the company is led by CEO Charlie Mills, President Andy Mills and COO Jim Abrams.

Notably, growth at Medline has exploded in the last decade under the latest generation,  with a double digit growth rate in recent years, sources said. (Passing down a company of such scale through generations of a family all the while continuing to accelerate growth is not particularly common, as one source pointed out.)

Medline said it will use the new resources and financial backing to “expand its product offerings, accelerate international expansion and continue to make new infrastructure investments to strengthen its global supply chain.”

Medline has the opportunity to continue taking share in acute hospitals, as well as further penetrate home setting, skilled nursing facilities and physician offices. M&A opportunities and digitization from and operational perspective will also be growth levers, sources said.

In a world where critics of club deals say there are too many cooks in the kitchen, partnering with three private equity firms that have successfully worked together was a compelling dynamic and mattered in this instance for the family, sources said.

For example, Thermo Fisher in April bought the PPD at a nearly $21 billion enterprise value, after the pharma services giant had seen its equity value grow by 11x under its decade of backing by Carlyle and H&F, PE Hub wrote in April. 

H&F and Blackstone also have a long history of partnering. That includes Kronos, a human capital software giant originally backed by H&F in 2007, with Blackstone joining the shareholder base in 2014. Elsewhere, H&F sold a majority stake in Change Healthcare (previously called Emdeon) in 2011 to Blackstone, staying on as a minority investor.

As Medline enters its next phase of growth, the deal raises another question: what does this mean for the big public players like Cardinal Health, Owens & Minor or McKesson?

Although nothing may be imminent, sources said they are watching what kind of strategic moves will be made. For example, will Cardinal — with disparate medical supplies and pharma distribution businesses — finally break up its empire?