While hot sectors like ophthalmology, dermatology, genetics, and behavioral health continue to draw a lot of attention in the media, we are seeing an emerging group of middle-market private equity groups and lenders becoming quite creative in finding new sectors to explore while they re-discover previously abandoned niches to find unique growth opportunities.
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This summer, Intrepid completed three healthcare transactions since our last industry report. Intrepid advised on the sale of Los Angeles-based Mini Pharmacy, one of California’s largest distributors of diabetic supplies and insulin; the majority recapitalization of Frontier Dental Lab (Frontier), a Northern California based multi-national manufacturer of high-end cosmetic dental prosthetics; and the debt capital raise for Utah-based Advice Media, which develops and manages the online footprint of medical practices nationwide. These transactions reinforced our perspective that the pace and valuation of healthcare transactions continue to remain at all-time highs, but the landscape of what defines an attractive asset is broadening as financial sponsors look to aggressively deploy capital across the healthcare sector.
Diabetic care and its resulting specialty distribution services and disease management tools appear destined for a wave of investment activity. Building on Linden Capital’s 2018 recapitalization of San Diego-based Solara, one of the country’s largest specialty distribution businesses focused on diabetes, there appears to be renewed interest in diabetes and chronic disease management. Intrepid recently advised Mini Pharmacy on its sale to Angeles Equity Partners. Mini has been in operation for nearly 40 years and has grown to become one of the largest distributors of insulin and diabetic supplies. This deal announcement comes just a few months after digital care management company Omada raised $70 million and industry leader Livongo announced its intention to go public in a July IPO. After Amazon’s $1 billion acquisition of tech-enabled pharmacy packaging company PillPack, investors were concerned that Amazon might soon dominate the specialty distribution sector, but there appears to be renewed investor attention on opportunities in chronic disease management.
On the other side of the healthcare market, it’s no secret that routine dental care and its related high-margin ancillary services are a frothy market for private equity investors, but not all aspects of dental have been deemed so attractive. When it comes to the market for investing in dental labs, the specialty manufacturing facilities that fabricate veneers, crowns or implantable artificial teeth, have recently drawn lukewarm investor sentiment. The largest multi-facility labs have experienced eroding margins amid price competition and continued technological advancement. As with all sectors, though, industry innovators can sometimes produce highly-differentiated, high-margin businesses, and Intrepid found that in Frontier, a full-service, multi-site dental laboratory that provides high-end dental prosthetics, removable dental products and implants primarily for the cosmetic dentistry industry, leveraging a novel social media outreach strategy. In our recent sale of Frontier to O2 Investment Partners, private equity investors showed strong interest in Frontier’s differentiated go-to-market strategy and positioning as one of the industry’s highest-quality brands serving its most discerning cosmetic dentists.
In addition to our firm’s collective experience with these two private equity counterparts, our digital media colleagues also witnessed a similar robustness during their debt capital raise for Utah-based Advice Media. We learned that highly value-added companies serving medical practices nationwide have both the downside protection and growth potential to attract a wide variety of attractive potential transaction counter-parties. Clearly, healthcare activity remains alive and well!