Sun Capital makes push in growth-oriented healthcare with West Dermatology

The Boca Raton, Florida, firm eyes potential opportunities for investment in eyecare, behavioral health and across the orthopedic supply chain.

Sun Capital Partners’ acquisition of West Dermatology underscores the firm’s push into healthcare amid its continued migration to growth-oriented companies, versus the turnaround-focused approach for which it was once known.

The Boca Raton, Florida, firm said Wednesday it acquired West Dermatology, providing an exit for Enhanced Healthcare Partners.

The deal marks Sun’s third new platform in healthcare since it launched a new and reformed “homegrown” healthcare initiative in the 2015-16 time-frame, Stephen Cella, principal out of Sun’s New York office, told PE Hub.

Cella, who before pivoting to healthcare invested at Sun across the retail, consumer and business services industries, helps lead healthcare efforts alongside Managing Directors Dan Florian and Jared Wien.

Its other two healthcare investments are ClearChoice, a provider of dental implant services, and Simply Beautiful Smiles, a provider of dentistry and hygiene services.

The consistent theme across all three, Cella said: “These are [retail-oriented] provider businesses that are all growing very quickly, whether through de novos or acquisitions, with a great window into their consumers.”

Historically speaking, Sun grew up as a firm that went after companies that weren’t yet in growth mode, investing in those with a certain level of operational complexity in need of stabilization. But over more recent years, the firm once known as a turnaround specialist has increasingly broadened its approach, shifting towards companies like West Dermatology that already have a framework in place – both in terms of its structure of integrated practices and culturally speaking, Cella said.

“Our role in the business going forward is scaling that and leveraging that [framework],” Cella said. There’s a huge opportunity to act as a magnet to consolidate independent derm practices in its existing geographies and beyond, he said.

The evolution of Sun’s approach stems partly from its learning through the financial crisis, when the firm for a period of time ended up holding portfolio companies for longer, Cella said. “Ultimately, we determined that a lot of our operational practices were continuing to benefit the businesses not just as they stabilized. The same disciplines and operational tools could be applied in a growth setting,” Cella said.

In turn, Sun saw the opportunity to deploy the same toolkit and ultimately sell companies at multiple turns of EBITDA higher, Cella said.

Cella said there’s also an opportunity to invest in businesses that were recently restructured or went through an operational change: “The market maybe does not apply as much value to it, as there hasn’t been as much established history of profitability or growth.”

Sun’s acquisition of West Dermatology comes nearly a year after PE Hub reported that Jefferies had been engaged to sell the Newport Beach, California-based derm company, which sources at the time said was poised to market around $25 million in EBITDA.

Sun declined to comment on financial aspects of the deal, but Cella said the firm, having identified derm early on in healthcare as an attractive category, engaged in the process in October.

“West Dermatology, in particular, we viewed as a crown jewel asset within derm space,” Cella told PE Hub. “The platform has been very carefully assembled by [CEO] Chris Kane to focus on a micro-market strategy. Having density and mindshare within the geographies they practice – we think that really benefits from our operational approach.”

Outside of dental and derm, Cella said Sun’s healthcare team sees potential opportunity for investment across areas including eyecare, behavioral health, as well as across the orthopedic supply chain – which includes everything from spine, knee and hip surgery to interventional pain services.

The firm will be opportunistic, Cella said: “There are a lot of specialties – things like geriatric cardiology – where we think there will be opportunities going forward.”

Sun has a broad investment mandate, targeting companies generating anywhere from $50 million to $1 billion in revenue that range from loss-making to highly profitable. The firm targets control buyouts, but will also make non-control equity investments.

Action Item: Check out Sun’s latest Form ADV: https://bit.ly/3bBttdG