Growing healthcare businesses with private equity

Healthcare companies perform a critical role in society globally. Supporting them to drive innovation and accelerate growth can benefit many, and the right private equity investor can play a big part in that, according to Ben Long, partner and head of healthcare at Inflexion.

Private equity (PE) can truly help transform companies, with a number of entrepreneurs and management teams growing their businesses further and faster over the last half a century.

While the success stories span industries, the healthcare sector is currently under-penetrated by PE. This is surprising, given the sector’s attributes of being non-cyclical, high-margin, innovative, full of IP, and dedicated to improving lives.

The relatively low levels of investment into the industry are also disappointing because PE can bring in more than just capital. Funding and expertise can support expansion into new verticals or geographies, investment in innovation, and acquisitions. The right PE firm should act as a true partner in helping to make decisions and set strategy.

Bringing in a new shareholder can also inject some fresh zeal into a business by heightening a founder’s risk appetite, as they’ve already taken some upside off the table, and this can inspire new growth avenues for a business. Ditto for companies whose management have been able to carve out their business from a large corporation with the support of a PE investor, with erstwhile un(der)loved captives often growing impressively once their ambition is unleashed through independence.

The right PE firm can also bring a valuable network with it, with some well connected to existing or prospective customers of a business – and so able to offer introductions that are as helpful as they are warm. Many also have specific functional expertise in-house – for example around ESG, regulation, salesforce effectiveness, or talent and culture. These soft factors are in addition to some proven growth acceleration strategies employed by experienced and well-resourced PE firms.

Driving organic growth

Now, more than ever, it’s important for businesses to stay ahead of the curve when it comes to digital. Implementing ERP systems is a necessary chore in this space, and having a backer experienced in this complex task can mean the difference of a project finishing on time and within budget.

Another area increasingly important is generative AI. A small but growing number of PE houses have in-house experts that can help cut through the noise and highlight the implications for a business – a real asset when the backdrop is evolving so quickly.

A partner for international expansion

Well-resourced PE firms can help take businesses to new markets. As an example, Upperton Pharma Solutions received funding last year and is using it to expand its scale and capabilities at home and abroad. A new manufacturing facility, currently under construction, will allow Upperton to extend its services to support later stages of clinical trials and commercial manufacturing.

Support for M&A

Helping businesses’ growth organically and through acquisitions is the bread and butter of PE, and healthcare is no exception. Acquisitions can help businesses to expand into new verticals or geographies or even bring in new IP. They’re complex to source, negotiate, and integrate, but - if done correctly - can make a meaningful difference to a company.

Liquid pharmaceuticals specialist Rosemont illustrates the positive impact the right PE backer can have. Rosemont was carved out of its listed parent in 2020 by a PE firm and annual turnover has doubled since then to £110m, largely off the back of 10 new product launches.

Choosing the right partner

Just as no two businesses are alike, all private equity firms are different, too. Most will be looking for a business with a unique value proposition for customers, ambitious plans, strong incumbent leadership, and the potential to scale internationally. Investors need to focus on investing in high quality providers that serve growing markets. These could be ‘hidden technology champions’, with significant growth potential that can be further developed and expanded.

It’s equally important that healthcare businesses ensure they find a backer that fits their own plans. A good start is to ensure they’ve worked with other businesses on similar journeys to the business’ own, since that experience will be crucial in making it a success. Equally important is chemistry – typically a relationship with a PE investor begins a year or more before any investment is made, and then that partner is typically involved for five to seven years.

The journey can be incredibly fulfilling if working with people sharing the same vision and culture, who want to achieve the same goals. Take the time necessary in picking the right PE firm, as the results can be truly incredible.