Five Questions with Sun Capital’s Healthcare Team

 

With investments in dental, patient-based care, healthplan services, and pharmaceuticals, Sun Capital has built a thriving healthcare practice. Practice Leader and Managing Director Dan Florian and Principal Stephen Cella discuss how the strategy has grown, the investment areas they are focused on and key trends that are transforming the healthcare sector and creating new opportunities.

Dan Florian: While we have done some healthcare deals in the past, we formally created our HC team and strategy in 2017, and we have acquired four platforms (and dozens of add ons) since and have looked at thousands more. It’s not an opportunistic approach—it’s a core strategy and we have a dedicated team of three senior deal makers along with dedicated junior resources.

Stephen Cella: When we get the first call, it’s a productive conversation because we know the sector as much as any pure play healthcare investor. Sun’s executive committee has invested substantially behind the effort, and we have a huge compendium of research, relationships, and perspective built through those investments allowing us to price risk efficiently, and move very quickly.

Dan Florian: While we have reviewed virtually every middle market healthcare deal in the market for the past few years, to date we have acquired provider practices, but we are looking at a number of diverse sub sectors within healthcare, from clinical trials, to outsourced manufacturing of products, B2B HC services, and more. Across all of these, we look for performing businesses where there is room for operational improvement, such as refining sales and marketing, rethinking processes, improving crucial functions like call centers, and driving strategic acquisitions.

Stephen Cella: When we assess opportunities, we are looking for high-quality clinical baselines that we can grow into unmet market needs. When we buy a good clinical culture, we look to propagate it at scale without diminishing or interfering with it.We see unmet needs in population health management broadly, in accessing patients in rural and underserved communities, alleviating the behavioral stresses increasingly felt in the US and abroad, reducing the cost of employer health benefits, and supporting overall clinician and vendor consolidation to better resource services and partner with payers.

Dan Florian: We are completely agnostic and have acquired healthcare businesses from other PEGs and from founders.  We absolutely love partnering with entrepreneurial founders as we love the passion they tend to possess about the businesses they have created and grown.  In those scenarios, we can further align by having the founder seller roll part of his/her proceeds into our deal, creating a stronger bond.  As a firm, we have done as many corporate carve outs as any PEG, and would love the opportunity to do one in HC.

Dan Florian: Four major dynamics that we are paying close attention to now are Cost Containment, Patient Agency, and Outsourcing to specialists, and Value-based Care.

In the area of Cost Containment, we are seeing a big shift in the site of care, which is moving out of hospitals and nursing facilities and into less expensive settings, including homes and freestanding health centers. This is part of a larger evolution in value-based care, where physicians are increasingly thinking about the whole health of the patient, not just maximizing revenue at each specialty step. It requires coordination of care that is quite different from the old model. Our investment in Clinical Care Medical Centers is a notable example, where the key is chaperoning patients through the system and focusing on their care at each phase.

Patient Agency is a natural area for Sun Capital to focus on, given our 20+ year heritage investing in consumer businesses. As patients take greater control of their healthcare the way they have in other service businesses, they are expecting more retail-like experiences. This is in part driven by changes in the way that patients pay for care now, with higher deductibles and co-pays. It used to be you would make an appointment, describe your symptoms to the doctor and then do whatever they said without much question. Today, with greater access to information online, you have patients doing their own research and being much more particular about how care is being delivered. You must cater to that consumer mindset.

Stephen Cella: Outsourcing is something we are seeing more in the medtech and biotech spaces. From pharmaceuticals to implantable device companies, these highly technical businesses are focusing on discrete areas of the value chain, creating products, commercializing them, and outsourcing the rest, whether it’s contract manufacturing, clinical research, or developing a go-to-market strategy. You have a more complex ecosystem with multiple companies along the value chain that are hyper-specialized.

Value Based Care is an easy concept to reference in 2022, but it takes lots of forms. We have a classical “at risk” care business in the portfolio, Clinical Care Medical Centers, but we see value-based care as spanning all opportunities to reduce costs in the healthcare system through optimizing patient pathways, supplies and services procurement, retail and institutional financial tools, convenience, and access to data. The more engaged patients are, the more data all parties have, and the more certain activities can be dispositively analyzed, the fewer resources the entire system uses to get better outcomes.

Stephen Cella: First, we bring the Sun Capital approach to our work, meaning that we move quickly, always treat people with respect and are extremely transparent throughout a process to eliminate any surprises. We are an active group, we plan to being doing this together for a long time, and as such, our reputation as a great buyer and owner is far more important to us than any one deal or any one negotiated point.  That, combined with our core values as a firm, makes us a great buyer and partner.

Dan Florian:  One of the things that really sets us apart is our strong team of in-house operations experts, including our highly experienced healthcare operating partner, Sami Abbasi. Sami is a five-time CEO in the sector and has a long record of successfully growing businesses in the physician practice and multi-site healthcare markets. But he is not just a critical part of our operations team. He is also a thought leader early in the process to help us assess opportunities, focus on what is growing and exciting and understand what is operationally practical and executable, so we can bring both lenses to our investment strategy.

 

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Sun Capital’s healthcare portfolio highlights

Since the formalization of Sun Capital’s healthcare team and strategy in 2017, Sun Capital has acquired four platforms and dozens of add-ons. Sun Capital invested in Clinical Care Medical Centers and West Dermatology in 2020 and Simply Beautiful Smiles in 2019.
 

• Clinical Care Medical Centers: A provider of primary care, specialty care and ancillary services to Medicare Advantage and Medicaid plan members. The firm has had one add-on since the original investment. (Acquired in 2020)

 

• Simply Beautiful Smiles: A provider of dentistry, hygiene and specialty services operates in 39 locations in New Jersey, New York, Maryland and Virginia. The firm has had 18 add-ons, with a total of 20 practices acquired since the original investment. (Acquired in 2019

 

• West Dermatology: A clinical and cosmetic dermatology platform with locations throughout Arizona, California and Nevada. The firm has completed four add-ons since the original investment. (Acquired in 2020)

 

• ClearChoice Holdings serves ClearChoice Dental Implant Centers and is the only pure-play, national network of providers delivering same-day dental implant services in the U.S. Dental (Sold in 2020)