VSS Capital, Lincolnshire invest in Barrier Companies

Barriers' various fire and life safety services are critical for hospitals to remain in compliance and maintain funding from the Centers for Medicare and Medicaid Services.

VSS Capital Partners and Lincolnshire Management jointly invested in Barrier Companies, as regulation fuels a growing need for fire and life safety within hospitals. 

The pair of firms will collectively own a majority of the Lenexa, Kansas-based business alongside management, which rolled a significant investment.

VSS and Lincolnshire – which have a more than 25-year-history of partnering – began scouring opportunities across the broader facilities services market within healthcare about two years ago. Their search ultimately led them to a niche market – fire and life safety in health systems – a service magnified in the wake of the pandemic, but perhaps underappreciated.

“Hospitals have to function when there is a fire,” Phil Kim, a managing director at Lincolnshire, told PE Hub in an interview. “Normally, what we think about is evacuation. But, in actuality, with hospitals there are going to be patients you’re not able to easily transport out of a hospital right away; there’s lots of care going on real-time, not to mention a surgery or an operation that would need to happen.”

It is also a young and fragmented industry, with the Centers for Medicare & Medicaid Services (CMS) having instituted codes for fire and life safety (FLS) only five years ago, Patrick Turner, managing director at VSS added.

“It needs to be done very carefully and very well,” Turner said, referring to the various specialized services offered by Barrier, ranging from inspections and repairs to installation and code compliance support. “[CMS codes] are going to continue to get tougher, and I think that’s where the better companies will prevail.” 

CMS incentives make for a particularly interesting investment opportunity when compared with facility services for other end-markets, Turner explained. “Under their [CMS] rules, if you don’t comply, they’ll tell you what’s wrong. And if you don’t fix it, they can shut down Medicare funding.”

Founded in 2008, Barrier operates two divisions: Compliance Services, which provides essential inspection and repair of fire and smoke doors, dampers, barriers and complementary services to hospitals and other healthcare facilities; and New Build Services, which provides planning, budgeting, consulting and installation of thermal and moisture protection with a focus on data centers, education and commercial facilities.

Already a growing industry pre-covid, the pandemic, in Turner’s view, put a spotlight on the multitude of facets within a hospital that require attention. A given hospital might have 17,000 doors that require regular inspection to stay up code, for instance.

That being the case, the use of technology is also a crucial part of the thesis, Kim added. Proper tracking and reporting of inspections and repairs is required across many different areas of a hospital, requiring significant logistics, he explained.

The organic opportunity is vast. Barrier believes the total addressable market for compliance-related services is $26 billion in size, with healthcare totaling $13 billion.

Beside further penetration across the country’s thousands of hospitals in both metropolitan and rural communities, there is another natural market extension in which Barrier may look to expand, Kim said. That being, assisted living and senior or nursing care facilities. 

“There’s not an operating table there, but certainly, you’re talking about residents that are compromised in some way and might not be able to evacuate in the case of a fire, right?” Kim said.

Besides organic efforts, add-ons will be on the table, the investors said.

While both firms declined to comment on the size of the transaction, Turner acknowledged the investment fits right in the middle of the $5 million to $15 million EBITDA range typically targeted by VSS.

VSS, a structured capital firm, typically invests equity and debt in the companies in which it invests. The New York-based firm is focused on the information, business services, healthcare and education sectors in the lower mid-market, where it provides flexible capital solutions to drive growth.

Lincolnshire, also headquartered in New York, invests in lower mid-market companies. The firm specializes in finding value in companies that is unrecognized, underappreciated, or underestimated by the market, rather than limiting itself to specific sectors.