Recommending that private equity groups look for investment opportunities in the healthcare industry is hardly groundbreaking - or particularly useful - advice. The healthcare industry is a multifaceted, occasionally unwieldy collection of market segments, regulations, and laws, and identifying promising opportunities can feel a bit like searching for the needle in the proverbial haystack. However, if private equity groups can direct their attention to a specific portion of the healthcare industry, they will find it much easier to both identify and capitalize on opportunities. Consumer healthcare offers private equity groups significant opportunities if they approach the market correctly.
Private equity groups identify excellent investment opportunities in consumer healthcare, particularly when they take the following paths:
Consolidation plays in specific market segments
To be successful consolidators, private equity groups must take a market, aggregate it, and take advantage of economies of scale and scope to drive market expansion, share capture, and multiple expansion. Historically, this took the form of focusing efforts on acquiring portfolio companies in one specific market. In the consumer healthcare market, past success was largely built around businesses that have a stand-alone market position with significant consumer choice influencing the decision to receive services and higher margin commercial payment. For real-life examples of this strategy, see Dental Care Alliance, Forefront Dermatology, Physicians Immediate Care, and CityMD.
Investing in the payor market with a specific focus on consumer marketing segments
Private equity groups have successfully targeted risk-taking entities, including HealthSun, Universal American, CarePlus Health, and companies that provide services to payors focused on key consumer segments, including Matrix Medical Network, US Oncology, and US Medical Management. These organizations approached their segments in new and effective ways, delivering significant value and improving the consumer experience in the process.
Finding value creating opportunities in consumer-focused healthcare technology
Healthcare entities that utilize technology in innovative, consumer-focused ways present real opportunities for forward-thinking private equity groups. KKR-owned Internet Brands did just this when it acquired WebMD, and then promptly began acquiring organizations to broaden their consumer offerings with online tools to connect with physicians. At the same time, WebMD is engaging more on the clinical side including telehealth offerings and genetic testing via 3rd parties. Goldman Sachs recognized the opportunity in patient-acquisition technology company Evariant, realizing the potential in digital consumer engagement and marketing for healthcare providers.
How can private equity groups improve focus when evaluating opportunities?
First, private equity groups need to get more specific than “healthcare” or “consumer healthcare.” Narrow your focus down to specific elements of geography, customer, consumers, and delivery models to ensure a strong foundation for the business and its expansion.
Define the value creation model
After getting specific, private equity groups should take the time to define the value creation model. Is it aggregation and cost management with an overlay of improved consumer experience like retail health? Is it taking advantage of demographics and business models in an attractive segment like Medicare Advantage? Is it leveraging existing audience and technology capabilities and bringing accretive products and services to that audience?
Focus investment efforts accurately
Now that they’ve identified their focus and defined their opportunity’s value creation model, private equity groups can focus their investment efforts on the right model in an appropriate market. Experienced practitioners will see significant variation in the quality of assets, competitive dynamics and value creating opportunities between apparently similar companies and markets around the country. Navigating the micro-market and asset quality often requires experienced executive and practitioner insights. With those on board, the private equity firm can also be confident they have the talent to deliver against a consumer subsegments’ needs.
Learn from past successes
Taking the time necessary to study past private equity groups successes - with an eye on identifying the common theme - will help private equity groups accurately assess their own opportunities. Students of past acquisitions will notice that successful investments are built around focused consumer healthcare businesses with differentiated strategies in the right markets.
Consumer healthcare presents private equity groups with excellent investment opportunities if they back the right model in the right market. Bancroft Group has an extensive network of experienced executives and advisors to help identify opportunities and the professional expertise necessary to accurately evaluate their potential. Get in touch if you’d like to discuss how Bancroft Group can support you as you navigate the consumer healthcare investment landscape.