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Vistria pursues profit and purpose when investing in healthcare

'At our core, we are an impact-oriented middle market private equity firm, focused on delivering both financial returns and societal impact,' Vistria’s Schuppan told PE Hub.

PE Hub is profiling private equity firms investing in healthcare for our ongoing series. Here, we take a look at The Vistria Group, a Chicago-based firm founded in 2013 that focuses on mid-market companies in the healthcare, education and financial services industries.

The firm works to invest with dual effect – significant financial returns combined with positive social change for communities across America. The firm recently invested in Professional Health Care Network and is seeking ways to combine profit and impact through its healthcare investing.

PE Hub spoke to Amy Christensen, partner and co-head of healthcare and her colleagues on the firm’s healthcare team; Jon Maschmeyer, senior partner and co-head of healthcare; and David Schuppan, senior partner and co-head of healthcare. Christensen has been with the firm since October 2013, and she was also named to affiliate title Buyouts’ class of 2022 top women in PE.

“Our focus on making an impact and investing at that intersection of profit and purpose has resonated with the types of companies that we’re looking to invest behind – the ones that want to provide access to great quality care in a cost-effective way and are looking for a partner that’s aligned with that passion and vision,” Christensen said.

Investment strategy

“Our investment themes focus on areas where we can find disproportionate societal and economic impact, like healthcare, education, financial services,” Schuppan said. “Vistria is derived from Greek and Latin and means the ‘power of three’ and our investment philosophy centers around three pillars – operational, financial and policy expertise – that we believe help generate outsized returns and social impact.”

Within the healthcare sector, Vistria focuses on themes centered around health access, value and/or social equity opportunities and challenges.

“These tend to be sectors that are extremely fragmented, very inefficient, and often are consolidating or professionalizing while they’re innovating,” he said, adding that based on the firm’s portfolio, the firm is a broad-based healthcare investor and that is intentional.
“We believe strongly that the breadth and depth of perspective within healthcare – across healthcare providers, payers, technology, to life sciences as well as healthcare-focused education and financial services, gives us an edge in creating value.”

Has covid-19 changed your approach in healthcare investing?

“Covid caused change, but largely accelerated trends that were already underway and because of the breadth of our portfolio, not just on the healthcare team, but across the entire investment team, we quickly saw the impact of covid and were able to pivot,” said Maschmeyer. “The challenges we all faced – labor shortages, retention, supply chain issues – were front and center across our 18 healthcare businesses and the entire portfolio of 30 companies. We helped drive innovation and creative solutions to these challenges and were able to disseminate some of the successful tactics across our portfolio.”

Jon Maschmeyer, senior partner and co-head of healthcare

Maschmeyer believes the firm emerged stronger from the pandemic.

“There has been a lot of focus on the employee, making sure that they’re happy in the workplace and if you think about what business owners, executives and employees are looking for, they want a partner who can bring value to what they do,” he said. “And value is a lot more than just financial value. People are looking for purpose and meaning in their day-to-day lives. The opportunity set we see aligns very well to Vistria’s investment philosophy because it is part of who we are and what we do. It is hard to measure the exact upside, but on the margin, we have done better on retention and in adopting responses to the covid challenges that we all saw.”

Opportunities and trends Vistria sees today in healthcare investing

“We’re seeing continued need for mental and behavioral health services which has been a theme that we focused on in the past and will continue to focus on in the future,” said Christensen. “The convergence of decreased stigma, increased public awareness, more favorable reimbursement and coming out of the pandemic, especially, an increased need for mental and behavioral healthcare, creates opportunities to invest in companies that are providing high-quality, evidence-based treatment that are looking to grow so that more people can get access to the care that they really need.

“We are especially focused on companies that are working with kids and teens, who were disproportionately impacted by the pandemic, and people who are suffering from substance use disorder and co-occurring mental and behavioral health conditions, who want to stay in their homes and communities but also get access to high-quality treatment.”

How does Vistria differentiate?

“Our business model is well positioned for an inefficient marketplace like today’s middle market,” said Schuppan. “We think our value creation program is well situated for management’s needs in today’s complex and shifting market. Whether we are facilitating strategic relationships, executive talent or proprietary growth, our program and operating partners help our management partners access and optimize these those relationships and opportunities.”

How is the firm impacted by macro factors?

“We try to invest into large themes with strong secular tailwinds,” said Maschmeyer. “Because we are very thematic in our approach, we consider macroeconomic factors like recession or policy sensitivity.”

Most of the trends the healthcare team has been tracking are persistent across economic cycles.

“At some point we will face a recession – and of course it will impact some of our companies,” he said. “But at the same time, healthcare will still need to be delivered. The labor force challenge is one that we are dealing with because, clearly, there is a shortage of healthcare workers. While some of our companies are impacted by that theme, we are also investing into that theme with some of our businesses that train and supply healthcare workers. Overall, providing value to your stakeholders is critical – and that extends to quality, access and taking cost out of the healthcare system. I think those are durable trends.”

Exit strategy

David Schuppan, senior partner and co-head of healthcare

“We are very purposeful about creating value creation plans that align our management teams as well as our strategic and operating partners around a common vision,” said Schuppan, noting that for a variety of reasons, those plans tend to be in five-year increments, but the firm is always trying to achieve goals in a shorter period.

“To that end, I think you’ve seen in healthcare, in particular in categories that have disproportionate growth and value opportunities, companies are achieving their five-year plans in much shorter periods,” he said. “We’ve been very fortunate to have invested in several of these areas, like in-home care, and our management teams have done a great job executing. When we are achieving our goals earlier than plan, it is natural to ask: What comes next? Sometimes that choice is the board’s and in certain cases, we have had external parties or strategics who have approached us. In certain situations, we have been able to recapitalize companies through continuation fund vehicles or cross-fund investments that have allowed ourselves and management to continue that value creation journey together. In all cases, the exit conversation is a very collaborative process, centered around the value creation plan.”

Amy Christensen, partner and co-head of healthcare

A vital aspect of investment success is Vistria’s alignment with management, Christensen said.

“Everything that we do, from board construction to engaging strategic or policy relationships and the integration of our Portfolio Resources Group, is dedicated to partnering with management to help pull those levers in a way that gets them to where they want to go, maybe even quicker than expected,” she said. “It is a very thoughtful process and if we all collectively achieve that growth plan earlier than we expected, we will certainly look at exit options. We have been fortunate that the homework that we have done up front, the set of relationships that we put around our teams, and importantly, the talented management teams that we have backed, have allowed us to achieve our five-year plan in a shorter time frame.”

Recent investments

Vistria invested in Beacon Specialized Living and Professional Health Care Network in 2022 and in BioCare Sd, HomeCare Holdings and Homefree Pharmacy in 2021.

“We have a unique window into many of the opportunities that in-home care can offer with respect to improved access and value for all healthcare stakeholders,” said Schuppan. “PHCN was a business that we had identified through our existing portfolio that was helping address these challenges. We felt that our prior experience and strategic relationships in home health (payor, provider and technology) could serve as catalysts for both PHCN value creation as well as societal impact through development and deployment of outcome (rather than FFS) oriented reimbursement. We think this helps align and encourage home health value and utilization, respectively, in ways previously unseen.”

Recent exits

Vistria exited CareMetx in 2022 from an older fund and reacquired it through its third fund alongside General Atlantic in Jan 2022; it exited Supplemental Health Care in 2021 from an older fund and reacquired it through its fourth fund along with Apollo Impact in 2021; exited Agape Care after selling to Ridgemont Equity Partners in 2021 after making initial investment in 2018; exited St Croix Hospice in 2020 when sold to HIG Capital after initial investment in 2017.

Vistria’s healthcare portfolio highlights

(Dates refer to initial investments.)

Beacon Specialized Living: Multi-state provider of comprehensive behavioral health services, including residential and community-based support services. (March 2022)

Behavioral Health Group: Joint commission-accredited outpatient opioid use disorder treatment network offering the full spectrum of care for individualized treatment and proven results. (2018)

BioCare: Specialty pharmaceutical distribution partner that provides distribution, specialty pharmacy and 3PL services. (2021)

CareMetx: Patient access company facilitating patient medication adherence and access to life-saving drugs and devices. (2021)

Help at Home: A home care provider delivering in-home healthcare to seniors and persons with disabilities across 13 states through its team of dedicated caregivers. (2020)

Sevita (formerly known as Civitas): Healthcare and human services provider offering community-based services to adults and children with behavioral and medical challenges. (2019)

Medalogix: A provider of clinical decision support tools for home health and hospice that optimize care plans and transitions of care. (2021)

Mission Healthcare: A provider of skilled home healthcare as well as palliative and hospice services throughout the western US. (2020)

Professional Health Care Network: Home health specialty benefit manager that provides home health provider networks, utilization management and benefit administration services. (2022)

Supplemental Healthcare: Healthcare staffing and workforce solutions provider, connecting healthcare organizations with skilled medical clinicians. (2021)