Where industrials meets healthcare

It’s Thursday, healthcare enthusiasts.

I often write about subsectors of healthcare that blur the lines of tech or retail, contributing to a broader pool of buyers that are driving today’s premium valuations even higher. Think: specialty electronic medical record software or vet hospital chains.

Well, everybody, there’s also activity going on at the nexus of healthcare and industrials that’s getting some excited.

I recently got the chance to catch up with Eric Kanter of Morgan Stanley Capital Partners, who helps lead the firm’s industrials practice. One of two healthcare packaging companies that MSCP backs is Comar, which recently snapped up iMark as part of its effort to build out a platform centered around technically complex capabilities.

Speaking to MSCP’s broader interest in healthcare packaging, Kanter told me there are high barriers to entry due to infrastructure requirements, technical know-how and significant cost of failure, as packaging is oftentimes specified into the end product. There are also high shipping costs associated with offshoring, which, he said, “create the ability for domestic US packaging platforms of scale to be built and outperform in the long run.”

MSCP’s big vision for Comar? Move upmarket in healthcare, Kanter said.

MSCP and Comar plan to cherry-pick assets, with specific areas of interest that include scientific molding, micromolding, silicon and sharps: “We target projects that are super-complicated engineering-wise,” Kanter said.

Broadly, prized assets in healthcare packaging have commanded mid-teens multiples of EBITDA in recent activity – at a premium to packaging assets focused in other end-markets, sources have said.
For example, when Kohlberg & Co last year prevailed in the sales process for Mason Wells’ Nelipak Healthcare Packaging, the deal commanded an approximately $590 million valuation, implying an EBITDA multiple of around 15x, people familiar with the matter told PE Hub at the time.

The notion that you can build a platform in healthcare packaging by rolling up assets and buying down the entry multiple – a strategy oftentimes pursued for multi-site healthcare assets – is a faulty one. Prices for smaller assets in healthcare packaging have also creeped up, I’m told.

For exclusive financial deets on Comar and more on MSCP’s playbook, check out my full story.

Top Scoops
Pharma services heats up: In a recent discussion on the outlook of healthcare PE investing with Dan Shoenholz, Aaron Feinberg and Slavena Bardarova, who are among leaders of the healthcare practice at Ernst & Young’s Parthenon unit, Schoenholz told me that many sponsors are coming to the conclusion that traditional areas of investment like practice management are crowded.

“Traditional pharma is set up as a process industry, but with all of the innovation in specialty pharmaceuticals and personalized medicine, it’s being disrupted. This is leading to opportunities,” said Shoenholz, a principal at the firm.

The idea that the value chain is shifting is opening up more of these specialized support services that are good for a range of investors, Shoenholz said. In other words, while some mid-market folks wouldn’t buy a big CRO (contract research organization) company – where growth and consolidation are a little played out – the pool of buyers is greater across the various niches.

Check out PE Hub’s full update on the pharma services industry.

That’s it for today’s rundown. As always, shoot me a note with any comments, tips or just to say hello.
–Sarah