Middle Market Growth - June 2014 by Association for Corporate Growth

Growth MIDDLE MARKET

// JUNE 2014

Investing in

Tomorrowâ€™s Workforce Jobs for the Burgeoning Medical Industry

HIGH PROFILE: THE CREATION OF A MIDDLE-MARKET GROWTH CONGRESSIONAL CAUCUS A QUALIFIED OPINION: KAREN PAJARILLO, A RIVERSIDE PARTNER FOCUSING ON HEALTH CARE

A publication of

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EXECUTIVE SUMMARY PAM HENDRICKSON // ACG Global Board Chairman and COO, The Riverside Company

Responding to Health Care Needs

ealth care in the United States is in a state of flux right now, which makes for a difficult but very exciting time for investors. In the midst of the significant changes of recent years,

savvy investors are finding great opportunities. We’re sharing some of those stories in this edition of Middle Market Growth. We all know U.S. health care is still too expensive, particularly in relation to outcomes. That, combined with an aging population and longer life spans, is creating many openings for companies that can help providers reduce their expenses and improve results. Finding efficiencies and helping physicians make decisions more effectively are the overriding trends. A fee-for-service model is shifting to a value-based one. And, as a consequence of the Affordable Care Act (ACA), providers must assume and manage more risk. Along with these new opportunities come some daunting challenges. Due diligence on health care companies must reveal whether they are in compliance with ever-increasing regulations, and a strong organizational structure is required for any company that wants to consistently deliver care well. Experienced and highly competent management teams are a must. Our cover story gives an overview of the efforts by Huron Capital Partners to meet increasing demand for well-trained workers in health care fields. The firm’s investment in Ross Education, a career development school that prepares workers for today’s market, is a great example of how investors are meeting industry needs while also creating value. We also hear from Karen Pajarillo, a partner at the Riverside Company who specializes in the health care industry, and from Reeve Waud, founder and managing partner of Waud Capital Partners. Riverside has completed 69 health care deals in its 25-year history and currently has about 30 diverse health care companies in its portfolio, providing everything from hospice management to hospital surveys and workers’ compensation. Chicago-based Waud Capital has a predominantly health care-oriented portfolio with $7 billion in aggregate revenue and 15,000 employees; insights from Karen and Reeve are backed by a lot of experience. Members will gain additional high-level perspective from this issue’s State of Health Care report from the National Center for the Middle Market, a short video on the effect of the ACA on the industry and some quick facts and figures on the aging population’s effect on health care. And while health care makes up a large number of middle-market companies, businesses that fit the definition of middle market span a wide range of industries. That’s why we were delighted to announce that representatives from the U.S. House approved formation of the Congressional Caucus for Middle Market Growth. Don’t miss the interview with Reps. Jared Polis, D-Colo., and Steve Stivers, R-Ohio, who co-chair the caucus. //

EXECUTIVE SUITE BILL HANNAH // Principal, Dixon Hughes Goodman

WHAT IMPACT WILL THE AFFORDABLE CARE ACT (ACA) HAVE ON HEALTH CARE ORGANIZATIONS?

BH: The passage of the ACA, while politically controversial, has in many cases expanded and accelerated dialogue related to transformation of the health care industry. This transformation was already well underway prior to the passage of the act, driven in large part by employers and consumers who were demanding higher quality care with better outcomes for their spending. Specifically, the ACA has a stated goal of expanding coverage, and thereby access to health care for millions of Americans who have not had consistent access to care in the past. This expansion, and the accompanying demand for access, will create new pressures on existing capacity in the market. Demand for increased access is coming as we see downward pressure on payments from both government and commercial payors. Outside of the ACA, we see the continued shift of financial and performance risk from payors and employers to providers. Providersâ€™ ability to meet the demands of increased access and manage financial and performance risk is critical to their continued viability.

THE NUMBER OF PEOPLE COVERED BY SOME TYPE OF INSURANCE WILL EXPAND AS A RESULT OF THE ACA; HOW DOES THIS AFFECT REVENUE GROWTH OF HEALTH CARE PROVIDERS?

BH: Certainly as the number of people who have access to care increases, providersâ€™ revenue streams will be impacted. Payors are shifting more and more risk to providers. There has been significant growth in the numbers and types of new payment models and an accelerated move-

BIO //

ment to risk and value-based payment models and away from traditional

BILL HANNAH leads the revenue performance and transformation practice for DHG Health Care. He has more than 30 years of experience in assisting health care organizations to improve financial performance by optimizing their revenue cycle operations.

fee-for-service payments. The shift will cause providers to rethink how they budget, how they plan and ultimately how they develop care models. Providers need to analyze their revenue streams at a much deeper level than ever before and be able to model the impact of the shift. Increased demand for access may not mean increased demand for traditional in-patient care. New payment models will drive new care models, recognizing that the ability to deliver the right care at the right place at Continued on next page

EXECUTIVE SUITE BILL HANNAH // Principal, Dixon Hughes Goodman

the right time will be critical to sustainability and continued viability. New and potentially disruptive technologies will also impact the demand for traditional hospital-based care. Providers need to be able to identify these new risks and mitigate them effectively.

WHAT ARE SOME OF THE CHALLENGES SPECIFIC TO M&A DEALS INVOLVING HEALTH CARE COMPANIES?

BH: As legacy revenue streams change and as new care delivery models emerge, investors will need to be able to understand the new risks. Traditional financial models may not consider the impact of moving to new payment models or the change in care delivery models. The pace of change is aggressive, and a trailing three-year financial model may not be a good indicator of future profitability. Investors need to understand this change and the increased risk. I think we’ll continue to see an increase in M&A activity as organizations and companies consolidate to create scale in the market. The downward pressure in payments will likely result in a higher number of distressed organizations looking for merger partners or to be acquired. //

Click to view the Dixon Hughes Goodman webinar “Critical Considerations for Hospital M&A.”

ÂŽ

2nd Annual Deal Crawl

CONFERENCE September 23-24, 2014

The Ritz-Carlton, Charlotte www.acg.org/charlotte Registration opening August 1, 2014

Contact DealCrawl@acg.org for sponsorship opportunities

Growth MIDDLE MARKET

// JUNE 2014

GROWTH STORY

An Rx for Growth As U.S. baby boomers began to get older, Ross Education recognized an opportunity to expand its health care educational services. Detroit-based Huron Capital Partners recapitalized the Michigan company and began to make substantial changes. The new focus paid off: Ross quadrupled enrollment, and job placements in the Michigan market grew more than three-fold. Read more.

“GIVEN THE DEMOGRAPHICS IN THE COUNTRY WITH THE AGING BABY BOOMER POPULATION, WE KNEW WE HAD TO GROW OUR HEALTH CARE PROGRAMS.” // PAUL MITCHELL, FORMER CEO, ROSS EDUCATION

Growth MIDDLE MARKET

// JUNE 2014

Investing in

Tomorrow’s Workforce Jobs for the Burgeoning Medical Industry

HIGH PROFILE: THE CREATION OF A MIDDLE-MARKET GROWTH CONGRESSIONAL CAUCUS A QUALIFIED OPINION: KAREN PAJARILLO, A RIVERSIDE PARTNER FOCUSING ON HEALTH CARE

A publication of

ON THE COVER //

Examining new careers in health care. Top photo by Adam Bird

TABLE OF CONTENTS

PRESIDENT & CEO Gary LaBranche, FASAE, CAE glabranche@acg.org

VICE PRESIDENT, COMMUNICATIONS & MARKETING Kristin Gomez kgomez@acg.org

EDITOR-IN-CHIEF Deborah L. Cohen dcohen@acg.org

FEATURE

IN EVERY ISSUE

High Profile The U.S. House of Representatives announced in April the formation of a bipartisan Congressional Caucus for Middle Market Growth. Middle Market Growth asked the U.S. representatives behind the effort—Reps. Steve Stivers, R-Ohio, and Jared Polis, D-Colo.—for their views. Read more.

Executive Summary Executive Suite Face-to-Face The Ladder It’s the Small Things The Leadership

• Tackling Health Care Costs. • Health Care Still Attractive for Private Equity. • The Risks and Rewards of Health Care Deals. Read more.

A QUALIFIED OPINION Karen Pajarillo, a Riverside partner, discusses how challenges and opportunities in the health care industry affect private equity. Read more.

Christine Melendes, CAE cmelendes@acg.org

MANAGER, COMMUNICATIONS & MARKETING Larry Guthrie lguthrie@acg.org

MANAGER, CREATIVE AND BRANDING Brian Lubluban blubluban@acg.org FOR ADVERTISING OPPORTUNITIES

DEPARTMENTS THE ROUND

VICE PRESIDENT, CONFERENCES & PARTNERSHIPS

ACG@WORK • New York Event for Business Students. • Texas Hosts Former CIA Director. • San Francisco Tech-Themed Conference. Read more.

THE PORTFOLIO

DIRECTOR, STRATEGIC DEVELOPMENT Meredith Rollins mrollins@acg.org

The latest middle-market trends and

Custom media services provided by Network Media Partners, Inc.

thought leadership written exclusively by a team of expert ACG Partners. Read more.

Association for Corporate Growth 125 South Wacker Drive, Suite 3100 Chicago, IL 60606 ACG Membership: membership@acg.org www.acg.org Copyright 2014 Middle Market Growth®, InterGrowth and the Association for Corporate Growth, Inc. All rights reserved.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

To learn more, please email events@acg.org or visit eurogrowth.org.

SAVE THE DATE

Join Dealmakers in the U.K. for Global M&A Event this Fall Join middle-market dealmakers Oct. 15–16 in London for the ACG EuroGrowth® 2014 conference. This premier global M&A deal flow event captures, in just 36 hours, unprecedented networking opportunities for all ACG members and partners interested in engaging with the European marketplace. Like ACG’s annual InterGrowth conference, EuroGrowth features exclusive networking for private equity professionals, intermediaries, lenders, advisors, corporate executives and development officers. This year, the event will feature top industry leaders as panelists and targeted roundtables on cutting-edge topics and issues facing the middle market. EuroGrowth 2014 will also include an ACG Capital Connection® to efficiently connect with dealmakers in the U.K. and across Europe.

“ACG EUROGROWTH IS THE ONLY FORUM FOR MIDDLE-MARKET EXECUTIVES WITH GLOBAL COMPANIES TO MEET, DEVELOP AND DEEPEN LONGSTANDING RELATIONSHIPS. THIS YEAR, TWO OF OUR CLIENTS REALIZED CROSS-BORDER JOINT VENTURES BECAUSE OF THE RELATIONSHIPS FORMED AT EUROGROWTH.” // MARTIN L. OKNER, MANAGING DIRECTOR, SHM, CORPORATE NAVIGATORS

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS Participate! During July and August, ACG chapters across the globe will host local events. Check out whatâ€™s happening at your local chapter, register and join in on valuable educational and networking opportunities.

4th Annual ACG Los Angeles Awards, Walt Disney Concert Hall Left: Event sponsors, from left, are Omid Yazdi, KPMG; Heather Sager, Vedder Price; and Paul Wissmann, KPMG. Right: Fuhu, Inc. receives a tech innovation award: from left, Gary Rabishaw, Intrepid Investment Bankers and president of ACG Los Angeles; Linda Choi, Fuhu; Rahul Merani, DLC and Awards Committee member; Peter Coleman; and Grace Ryu, Fuhu.

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ACG Central Texas Chapter (Austin and San Antonio) View Calendar

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Had a newsworthy chapter event? Send a 150to 200-word summary and high-resolution photos to editor Deborah L. Cohen.

THE ROUND NEWS THAT MATTERS

Tackling Health Care Costs Head On Nine of 10 middle-market executives say health care costs are one of the biggest challenges facing their business. In fact, the cost of providing health care to employees has topped the list of business challenges identified by middle-market companies every quarter over the past two years, according to a key indicator tracked by the National Center for the Middle Market. To fully understand the problem and offer solutions to reduce costs, the Center commissioned a survey of 600 C-suite executives from mid-sized firms. Rather than dropping coverage for their employees or accepting status-quo costs, middle-market companies are embracing new health care delivery solutions to mitigate these expenses while maintaining benefits, the study found. According to the report, four strategies are helping companies save as much as $200 billion: • Implementing wellness programs. • Providing on-site or remote health care. • Sourcing lower-cost health care.

Tom Stewart, Executive Director, National Center for the Middle Market

• Analyzing health care data. Providing health care at a location convenient for employees is one strategy deployed by 18 percent of executives surveyed. They have developed permanent on-site facilities providing health care services from a physician or nurse. Debra Robinson, general manager at American Showa, an automotive parts supplier in Ohio, opened health and wellness centers at each of her company’s two plants exclusively for employees and their dependents. The sites offer primary and urgent care, physical therapy and preventive medicine, as well as occupational therapy. American Showa discovered that on-site medical care results in lower overall health care costs and better access to high-quality health care for all employees. This and other cost management tactics will help, but a couple of large issues will keep health care high on the list of concerns of middle-market executives, at least for a time. First is the relentless rise in health care costs; the rate of increase has slowed in recent years but remains high enough to be threatening. Second is learning the ins and outs of the Affordable Care Act, which differs greatly from state to state. As companies start to find their way around Obamacare, anxiety about how the legislation will work is likely to diminish (we are already seeing data suggesting this), but the underlying issues—high costs, a complex system and a need to provide benefits that attract and retain top talent—will remain. // —Tom Stewart is executive director of the National Center for the Middle Market.

The National Center for the Middle Market is a collaboration between GE Capital and The Ohio State University Fisher College of Business. To learn more, visit middlemarket center.org.

THE STATE OF HEALTH CARE IN THE U.S. MIDDLE MARKET MIDDLE-MARKET COMPANIES ARE COMMITTED TO HEALTH BENEFITS

HEALTH CARE TOPPED THE LIST OF BUSINESS CHALLENGES

79+21

of middle-market firms have experienced health care cost increases.

ANNUAL INCREASE

OVER PAST 5 YEARS Firms expect those levels of increases to continue.

Many middle-market companies do not have the purchasing power and administrative resources of larger companies and find the matter of employee health care complicated.

90+10 90

of middle-market executives see health care costs as their top challenge.

25+75 90+10 <

TOP IMPLEMENTED PROGRAMS

of middle-market companies would drop coverage altogether to deal with increased costs.

of companies say health care helps attract and retain top talent.

Middle-market firms see health care as a key driver of talent, productivity and growth. On average, middle-market companies pay 2/3 of the employee health care premiums.

80+20 80

of middle-market executives see health care as a companyâ€™s responsibility to its employees.

EXPECTED OUTCOMES*

62%

50%

+25%

49%

-22%

SOURCING LOWERCOST HEALTH CARE

MIDDLE-MARKET FIRMS PROVIDE UNIQUE INSIGHT INTO THE RELATIVE EFFECTIVENESS OF NEW HEALTH CARE PROGRAMS

TAKING ACTION WITH NEW HEALTH CARE STRATEGIES

WELLNESS PROGRAMS

HEALTH CLINICS

ANALYSIS OF HEALTH CARE DATA

GROWTH

ABSENTEEISM

+25%

PRODUCTIVITY

% -17 $

HEALTH COSTS

*Minimum expected for implemented solutions.

FOR MORE INFORMATION VISIT

MIDDLEMARKETCENTER.ORG

THE ROUND NEWS THAT MATTERS

Access the full Global Healthcare Private Equity Report from Bain & Co.

Health Care Still Attractive for Private Equity Health care remains a bright spot for private equity investment, according to a 2014 report from Bain & Co. Here is an excerpt from the firmâ€™s summary: Similar to 2012, several factors constrained mega-deal activity in health care, led by stiff competition from strategic buyers and rich valuations. Despite some dampening in investment activity, these trends had the welcome consequence of creating a robust exit environment. The number of portfolio company exits hit a 10-year high in 2013, with the majority going to strategic players and several making sizable IPOs. When funds made large investments in 2013, they spread them fairly evenly across sectors, unlike the clustering of $1 billion-plus deals seen in the provider and services space in 2012. The biggest concentration of these large deals was in the pharmaceutical sector, including both traditional pharmaceutical assets and service organizations like contract outsource organizations. The provider and services sector also remained strong around the globe and was especially popular in emerging markets, such as India and Southeast Asia. Investments generally fell under one of three themes, with the first two extending the trends set in motion in 2012: (1) prize assets in good markets with strong competitive positions and rich valuations; (2) value plays focused on targets with strong cash flows in mature businesses; and (3) earlier-stage assets in markets that are too new to offer big platform assets or clear favorites. Looking ahead, we are optimistic that the pace of investment and exit activity will remain brisk. Private equity funds should continue to see attractive opportunities for investment in both earlier-stage and larger assets. That said, it is getting harder to win in health care private equity given the rising level of competition within the private equity sector and from strategic investors. It is an open question as to whether we will see a bifurcation in fund strategy, with some funds investing simply to stay in the game long term and willingly accepting lower returns in their target investment segments while others go â€œheavierâ€? into health care and take on more regulatory, reimbursement or technology risks with the hope of higher returns. Regardless of their approach, being smart about their investment strategy, staying focused on their deal sweet spot and growing the value of their portfolio companies will give firms an edge. //

THE ROUND NEWS THAT MATTERS

The Risks and Rewards of Health Care Deals: Q&A with Reeve Waud Reeve Waud is the founder and managing partner of Waud Capital Partners, a Chicagobased private equity firm with more than $1 billion of capital under management. Since 1993, the firm has partnered with talented management teams to invest in growth-oriented middlemarket companies. The firm seeks to invest $20 million to $100 million in each platform and has successfully completed more than 160 investments. Waud Capital focuses on health care services and business and related services. Middle Market Growth: Waud Capital was a leader in health care deals for 2013. What is so compelling about this sector? Reeve Waud: We have found compelling opportunities by identifying certain macroeconomic trends and seeking companies that can be positioned to effectively evolve along with these trends. For example, we look for companies that can provide the highest-quality care in the lowest-cost setting. Then we collaborate with management teams to develop the metrics and systems to effectively measure both quality and costs. We also believe that timing matters. At any given time, only a handful of the niches within the health care services sector may be attractive for investment. We leverage our deep domain expertise to determine the most attractive niches each year. For example, our behavioral health business, Acadia, benefited from a confluence of trends that have been developing over the past 50 years, including the passing of mental health parity laws, the identification of mental illness as an underserved market and the growing recognition of the cost of invisible diseases to society. In combination, these factors created tailwinds that helped us start up, build and grow this business into a market leader. MMG: What are the biggest challenges you face when doing health care deals? RW: The primary challenge with investing in health care services is that the sector is not always driven by traditional economic forces. With the stroke of a pen, dynamics can changeâ€” and often doâ€”for noneconomic reasons. Generalist investors may find health care services attractive due to demographic trends and the fact that these services typically canâ€™t be outsourced abroad. While that may be true, we believe investing in this sector has more to do with understanding and meeting the unique interests of the patients, caregivers and, most importantly, the payors. While all payors want to improve quality and lower costs, there are nuanced ways each payor approaches this goal, and they differ by type of payor and state. Understanding these dynamics is a critical challenge generalist investors may underestimate. Continued on next page

Reeve Waud, Managing Partner, Waud Capital Partners

THE ROUND NEWS THAT MATTERS MMG: How does the due diligence for health care differ from other sectors you’ve worked in? RW: In health care services, we always focus our diligence on three factors: reimbursement, compliance and regulation. It is a perquisite that our executive partners have expertise in these areas and that we shape the company’s strategy to evolve with these forces. To build Sterling, our reference laboratory business, we partnered with David Lowenberg, an experienced health care services executive who previously served as COO of Express Scripts and helped to grow that business from about $150 million in revenue to nearly $20 billion. Before completing any investments, we spent 18 months working closely with David to map the reference laboratory niche, identify assets of interest and, most importantly, to understand the unique reimbursement, compliance and regulatory factors at play. Subsequently, over the past two years we have acquired five labs, formed strong partnerships with key payors and added the human capital and infrastructure to make Sterling a leading national health care services business. MMG: What was the most interesting deal you completed in 2013 and why? RW: In 2013, we completed the sale of CarePoint Partners to BioScrip.com for $223 million. CarePoint is a leading alternate site infusion therapy and specialty pharmacy business. WCP founded the business in 2007 in partnership with Dana Soper, an accomplished executive in this field. The business is a perfect example of the type of investment opportunity we seek; the company’s success was a direct result of its ability to operate on the right side of the cost-containment curve. As use of infusible drugs grows, society must decide the best setting in which to deliver these drugs. The cost of home infusion represents 10 percent of the cost of receiving this care in a hospital setting and 20 percent of the cost of receiving it at a doctor’s office. Capitalizing on this opportunity, the company was built through organic growth, de novo openings and 16 acquisitions. At the time of the sale, the company operated a network of 28 sites across nine states. //

THE ROUND NEWS THAT MATTERS

ACG JobSourceÂŽ is an online job board geared toward helping middle-market private capital professionals identify and apply for open M&A jobs. In addition, employers and recruiters seeking to fill middle-market jobs can access qualified candidates through online job postings, with ACG members receiving a discount. ACG JobSource job posts range from entrylevel positions and internships to C-suite executives. Find out more information.

New Guide to Investing in Euro Health Care The British Private Equity & Venture Capital Association (BVCA) offers

Have You Subscribed Yet? As part of the MMG suite of publications, ACG provides a daily newsletter, highlighting the latest on the middle market, M&A and private capital industries. Have you subscribed yet? Visit www.MMGdaily.com today and click on the subscribe button to ensure you stay abreast of whatâ€™s going on every weekday. Subscribe today.

a Guide to Investing in European Healthcare, the latest in a series produced by the BVCA to serve as an introduction to global markets and business sectors. The European health care industry is beset by manifold problems, from an aging population to reductions in public spending. Private equity has a long history of investing in health care, and given pressure on the public purse, it will continue to play a significant role in modernization. The capital our industry deploys, accompanied by its business and operational experience, means private equity can have a very significant and positive impact on the future of European health care. This guide, sponsored by Duane Morris LLP, provides an overview of market trends and explains how private equity firms can best enter the market. It is an area that rightly commands much public scrutiny; any investor requires detailed knowledge to be successful.

THE ROUND NEWS THAT MATTERS

VERTICAL VIEW // HEALTH CARE DEALS Health care deals are up nearly 150 percent since 2003; 312 transactions closed in 2013.

150%

The Mid-Atlantic region dominated deals in the health care sector last year, followed by the Southeast and the West Coast.

10%

Health care sector deals comprised 13 percent of the total in 2013, up steadily from a decade ago when they represented 9.6 percent.

13%

Buyouts remained the most popular type of health care deal in 2013, followed by investments in growth/expansion.

Health care deals accounted for 10 percent of total capital invested last year, up from 8.4 percent a decade earlier.

One Call Care Management was the largest deal in 2013, a leveraged buyout valued at

$2.3 billion.

The aging U.S. population helped make health care service deals the leader in 2013; 150 deals closed for a total of $26.6 billion, compared with 58 deals a decade ago.

Waud Capital Partners invested in 26 health care deals from 2009 to 2013, making it the top investor in the sector over the five-year period.

All statistics are from PitchBook for the middle market (deal values from $25 million to $1 billion).

TH E ACG GLO B A L N E TWORK IS N O W RI G HT IN TH E PA LM O F YO UR HAND.

The brand new mobile app is the one stop for ACG members to discover events, members, connect via social media, access Middle Market Growth, and more. Login credentials needed to access membership directory. D O W N L OA D TH E A PP:

ROSS EDUCATION

Shaping Health Care Careers for the Future Ross Education honed its strategy to provide new health care job opportunities BY CARINA WIECK

Photo by Adam Bird

leven years ago Autum VanVeelen, now 30, was laid off from her job in a real estate office. The western Michigan native tried community college but admits she wasn’t the best student. In hopes of finding gainful employment, she turned to Ross Education, a post-secondary school that trained students to become medical assistants. “I had to try something so I enrolled at Ross,” she says. For half the week, VanVeelen went to school at a Ross Education Center. She spent the remainder of her time gaining real-life work experience in medical offices. Upon graduation, she was able to secure a job as a medical assistant in a surgeon’s office. VanVeelen went on to gain additional training in medical billing and today is a certified professional coder for Trinity Health, a Catholic hospital chain in Michigan. “Some people may prefer students from a bigger college, but I proved that it’s not necessary,” she says. “Ross gave me a career path in a field that I enjoy.”

TEAMWORK // Left to right: With Huron Capital are Nicholas H. Barker, partner; Brian M. Schwartz, associate; Brian A. Demkowicz, managing partner and co-founder; John C. Higgins, senior partner; and Sean P. Roberts, vice president.

Photo by Adam Bird

HEALTH CARE OPPORTUNITIES // Nicholas H. Barker Partner, Huron Capital Partners

VanVeelen is one of many students who graduate from Ross with expertise that helps them find jobs. Founded in 1969, Ross Education began as a single-track career school with just one location in Flint, Mich. In the 1980s, it added an Innovative Employment Solutions (IES) Division, which provided job-readiness instruction, career assessment and basic-skills development to aid displaced workers—including many cast-offs from Detroit’s struggling automotive industry—who were trying to get back on their feet. By 2005, the two divisions had grown to 14 locations and were pulling in a combined $20 million in annual revenue. Paul Mitchell, one of three Ross shareholders and the executive in charge of the IES division, had a nagging feeling the career school was poised for growth. He sought third-party assistance for additional capital. Introduced by an attorney, Mitchell found a partner in Detroit-based Huron Capital Partners. “After a couple of meetings with Paul, we thought we had found a diamond in the rough. The business was healthy and producing good cash flow, but Paul’s partners had no designs on growth,” says John Higgins, a senior partner with Huron. “This business was performing well below its potential.” In 2005, Huron recapitalized Ross in partnership with Mitchell, who became CEO. The new team went to work, and over the course of two years, Ross made substantial changes, including selling the IES business so the company could focus exclusively on career training and restructuring the curriculum. Advised by Huron, Ross went on to close four of its campuses, open eight new locations and add programs in medical billing and dental assistant training.

Photo by Adam Bird

“MICHIGAN HAD THE HIGHEST UNEMPLOYMENT RATE IN THE COUNTRY,” HIGGINS SAYS. “A LOT OF PEOPLE WERE LOOKING FOR WAYS TO DEVELOP NEW SKILLS THAT WOULD LEAD TO A NEW CAREER. WE WERE A BRIGHT SPOT IN A DARK TIME.” John C. Higgins Senior Partner, Huron Capital Partners

“Given the demographics in the country with the aging baby boomer population, we knew we had to grow our health care programs,” says Mitchell, who is running for the Republican nomination to replace retiring U.S. Rep. Dave Camp, R-Mich. “We had phenomenal growth and gave many people an opportunity.” To plot the best course for Ross’s expansion, the team first turned to each of its existing markets, surveying dozens of employers to gain an understanding of how they felt about Ross graduates and what they expected from new hires. “We were able to discern where Ross stacked up against the competition,” Higgins says.

THE NEW WORKFORCE // Ross Education provides access to many health care career opportunities.

Huron also determined that four Ross locations in Georgia and Florida were no longer a good fit and sold them. Several of the remaining Midwestern schools were relocated to bigger, more modern facilities, while additional schools were built from the ground up. Ross also extended its operating hours to include evening classes to attract working students. “[Students] weren’t just out of high school,” says Mitchell, noting the average age is 26. “They were people who were looking for a new career.” Huron made Ross’s course offerings uniform across the schools and strengthened its operating practices, personnel, infrastructure and IT systems. Ross also started marketing to prospective students online; within a year of Huron’s purchase of the business, half of all incoming students had found out about Ross on the Internet. “This business was a lifestyle business, meaning it was producing good cash flow for its owners, but it was not professionally run,” Higgins says. “Everything was antiquated.”

PAVING THE WAY // Michael R. Beauregard Senior Partner, Huron Capital Partners

Photo by Adam Bird

Huron’s changes were appropriate for the market, according to Jeff Silber, a managing director with BMO Capital Markets who tracks the post-secondary school sector. “Schools like Ross that offer programs community colleges don’t offer in a sector that is growing tells employers they know what they are going to get—regardless which Ross school [students] graduate from,” he says. “It adds a sense of reliability and should help Ross students secure jobs.” The rejiggering efforts paid off. Ross quadrupled enrollment to 2,800 students between 2005 and 2010; during the same period, its job placements in the Michigan market grew more than three-fold to 350. When the recession hit in 2008, Huron was positioned for additional demand due to layoffs. “Michigan had the highest unemployment rate in the country,” Higgins says. “A lot of people were looking for ways to develop new skills that would lead to a new career. We were a bright spot in a dark time.” The leadership team was happy they could help people during that difficult period, he says, but was readying to sell the company it had held for four years.

Photo by Adam Bird

GROWING SECTOR // Gretchen B. Perkins Partner, Huron Capital Partners

In 2009, having grown revenue to $60 million and locations to 17, Huron and Mitchell put the company on the block. Ross was on track to bring in $65 million in revenue when it sold for $232 million in 2009 to New Yorkbased JLL Partners. The sale price offered a return of nearly 19 times Huron’s original investment. “It was a very well-run company,” says Ed King, a managing director with Lazard Middle Market, who advised Huron on its sale of the business to JLL. “They focused on smaller markets where there were fewer education alternatives, and they focused on health care, which is a growing market. They also did an excellent job building a uniform brand for the company.” Since Huron’s sale of Ross, the post-secondary school market has faced its share of challenges. President Obama has proposed new rules tightening the oversight of schools in the for-profit education sector. “The regulations are onerous, and they started a downward cycle for the industry as a whole because the government is willing to pay less in aid for for-profit schools,” says Silber, adding: “The cost will be passed on to students at a time when students are questioning their job opportunities

PRACTICAL TRAINING // Ross Education delivers skills with staying power.

in today’s tight job market.” Slated to take effect in June 2015, the legislation would apply to about 8,000 career-training programs at forprofit colleges and traditional schools offering certificates. Meanwhile, amid stagnant job creation in the United States, the sector has faced declining enrollment in recent years after peaking in 2011. As the industry seeks to stave off enrollment declines, build customer value and improve student outcomes, post-secondary schools may have no choice but to lower prices, freeze tuition rates and offer more scholarships, according to research from BMO. Despite these hurdles, Ross still continues to grow, in part due to its emphasis on the burgeoning health care industry. Under JLL’s watch, the company has opened seven new locations and grown its online platform. JLL declined to comment for this story. Says Mitchell, “I am proud that we created jobs and helped people develop careers in a positive environment. Despite pressures from the regulatory environment, Ross is still a force in the health care industry today.” That’s good news for more students like Autum VanVeelen. //

HIGH PROFILE

The middle market gains representation in the U.S. Congress: an interview with the co-sponsors of a newly formed caucus

BY AMBER LANDIS

he U.S. House of Representatives announced the formation of a bipartisan Congressional Caucus for Middle Market Growth (CCMMG) on April 16. Middle Market Growth asked the U.S. representatives behind the effort—Reps. Steve Stivers, R-Ohio, and Jared Polis, D-Colo.—for their views. MIddle Market Growth: You serve as co-chairs for the caucus. What is a caucus, and why did you feel the middle market needed this platform? Steve Stivers: A congressional caucus is a group of members from the U.S. House of Representatives who share common interests and goals. Members of the caucus meet periodically to discuss relevant issues and to direct actions that further an important issue or cause. Having spent part of my career in the banking and financial services industry, I have always been interested in the middle market and the ability of mid-sized businesses to grow and create jobs. I’ve also noticed how underappreciated this important segment of the economy is among my colleagues. In enacting laws such as Dodd-Frank and the JOBS Act, it became apparent to me that very few of my colleagues really understood middle-market businesses, how they operate,

the unique challenges they face and how regulations and policies Congress puts in place impact them. After conversations with ACG and the National Center for the Middle Market at The Ohio State University Fisher College of Business, I knew it was time to give the middle market a platform. A congressional caucus was a natural next step. Jared Polis: The value of a congressional caucus is that it allows a group of members to raise the profile of an issue through research and education. That is exactly what the middle market needs and why I am excited about serving as a co-chair of the CCMMG. As a business owner myself, I know firsthand how important it is to have public policies that promote growth and allow companies to innovate. This is particularly true for mid-sized businesses because they are the engine driving the American economy. As I became more familiar with the data behind the middle market— which is extraordinarily impressive—it was readily apparent how this segment lacks representation in Congress. Small businesses have support in public policy from the Small Business Administration and Small Business committees in both the House and Senate. Meanwhile, large companies and international corporations have well-established trade groups and deep government-relations arms to keep their businesses at the forefront of Congress’s agenda. Middle-market companies exist in a vacuum; they are too big to reap the attention given to startups but don’t yet have the resources of large corporations. I think the voice of the middle market needs to be heard. That’s why I’m pleased to co-chair a platform that will raise the profile of this important sector.

“…VERY FEW OF MY COLLEAGUES REALLY UNDERSTOOD MIDDLEMARKET BUSINESSES…” Steve Stivers U.S. Representative

“I THINK THE VOICE OF THE MIDDLE MARKET NEEDS TO BE HEARD.” Jared Polis U.S. Representative

MMG: What is your experience in growing and working with businesses? SS: I am proud that in my capacity as a member of Congress, in my district I am able to visit and interact with companies that truly represent the core of American values: hard work and innovation. During my time in the private sector as a business consultant, I worked with small and mid-sized businesses to improve their operations, explore new opportunities and create and retain jobs. As I interact with these companies across Ohio, I see how important it is to create public policies that foster a more positive business environment to allow middle-market companies to succeed. JP: I have been exposed to business growth and innovation since early in my career. Growing up in Boulder, Colo., I learned about the importance of entrepreneurship and hard work in my family’s business. I was still in college when I cofounded my first company, American Information Systems, an Internet access, web-hosting and application service provider. Since then, I’ve launched several other companies and had the privilege to see them grow and create jobs. I fully understand the challenges many companies face when they grow, and I am proud to bring my experience to support research and policies that will promote the middle market.

MMG: Can you share details about the middle market in each of your districts? What industries are experiencing growth? SS: In Ohio’s 15th Congressional District there are more than 90 middlemarket companies employing over 32,000 Ohioans. Health care is a big industry sector in my district that is largely represented by middle-market companies. In fact, in 2013, the total sales from middle-market companies in this segment exceeded $966 million; they employed almost 5,000 people. JP: According to the National Center for the Middle Market, more than 82,000 people are employed by 220 middle-market companies in my district. Those numbers mean a lot in terms of providing Coloradans good paying jobs and health benefits. Total sales from middle-market companies in Colorado’s 2nd District were $10 billion in 2013. The biggest driver of those sales is the services industry, which accounts for more than 30 percent of those sales. MMG: How do you think the CCMMG can help create awareness about the middle market? SS: Middle-market companies are found in a wide variety of industries in every congressional district across the nation and account for one-third of all private-sector jobs in the United States. The CCMMG will allow my colleagues to appreciate the powerful economic engine of the middle market. More than 44 million people are employed by an estimated 200,000 middle-market companies. When you start to break this information down by district, the stories and facts are very compelling. I believe the CCMMG will serve as an invaluable source of rich data and anecdotal stories about driving growth to local economies. I will be encouraging each and every one of my colleagues to become a member of this important caucus. JP: The middle market is critical to America’s economy, and yet it has been overlooked. With the formation of the CCMMG, my colleagues in the U.S. House of Representatives will become better educated about the impact the middle market has, and continues to have, on economic growth. Perhaps even more importantly, they’ll learn about the role the middle market is playing in creating jobs within their district. Members need to know about important contributions of the middle market: For instance, it accounted for 70 percent of all new jobs created in the U.S. last year. These same companies have outperformed, even during the financial crisis from 2007 to 2010, by adding 2.2 million jobs in major industry sectors and congressional districts across the country. Once this information is presented through the caucus, members will have no excuse to disregard this important sector.

Click here to download a copy of â€œDriving Growth,â€? a report on the contributions of private companies.

MMG: What is one item you hope to accomplish in the near future with the CCMMG? SS: My hope is that middle-market businesses will get the support they need from Congress and that we get many members of Congress to become part of this caucus. For every member that does join, I hope middle-market companies in their districts are made aware that elected representatives are paying attention and supporting policies that will continue to help drive growth for them. The more awareness we can create on both sides is a win-win. JP: My goal for the CCMMG is that Capitol Hill begins to understand and get excited about the significance of the middle market. I hope this leads to better policies and, ultimately, more jobs. The opportunity to educate and create awareness has not been tapped, and there is a tremendous opportunity to create excitement and initiate policies that will promote this important segment. // Amber Landis is manager, policy communications at ACG. She handles advocacy and outreach on legislative and regulatory issues on behalf of ACG members. Contact Amber at alandis@acg.org.

G L O B A L M & A D E A L F L O W. 3 6 H O U R S . O N E E V E N T.

O c t o b e r 1 5 – 1 6 , 2 0 1 4 | G r a n g e S t Pa u l’ s H o t e l | Lo n d o n , U K

S AV E T H E D AT E

S TAY U P D AT E D W W W. E U R O G R O W T H . O R G

#EUROGROWTH

A QUALIFIED OPINION KAREN PAJARILLO // Partner, The Riverside Co.

aren Pajarillo is a Riverside partner focusing on the health care industry, the firm’s longest-standing area of specialization. Based in San Francisco, Pajarillo has worked on multiple Riverside health care investments. She has prior experience in health care public relations and as an investment banker working in agriculture-related industries.

SELECT ABOVE TO SEE Q&A

THERE HAS BEEN MUCH FOCUS ON THE SERVICE SIDE OF THE HEALTH CARE SECTOR AS BABY BOOMERS RETIRE. WHERE WILL THE OPPORTUNITIES BE IN THE NEXT DECADE?

believe baby boomers will drive a lot of demand for services and products that enable people to stay in their own homes and “age in place.” These services could include both medical and nonmedical homecare or companies that install products in the home for people with limited mobility. And given the rate at which health care costs are escalating, health care payors are increasingly tying payment to performance rather than just paying for each procedure. When Riverside considers these investments, we ask whether the company is improving outcomes for patients, reducing the overall cost of treatment or facilitating more efficiency in the system.

Photo by Craig Sherod

A QUALIFIED OPINION KAREN PAJARILLO // Partner, The Riverside Co.

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HOW DOES THE ROLLOUT OF HEALTHCARE.GOV AND THE AFFORDABLE CARE ACT AFFECT OPPORTUNITIES FOR PRIVATE EQUITY IN THE HEALTH CARE SPACE?

he legislation is certainly creating opportunities for investors. Health care exchanges and the rise of consumer-directed health plans are forcing consumers to take more responsibility for their own health care. But the market is not very transparent. Consumers don’t yet have the information to decide which doctor has the best track record for treating their illness or how much a surgery will cost at their local hospital. Businesses that help consumers sort through the confusion and providers that demonstrate they have better outcomes for consumers will be especially compelling. We’re also watching companies that facilitate more price transparency or engage the consumer in more preventive health and wellness programs.

Photo by Craig Sherod

A QUALIFIED OPINION KAREN PAJARILLO // Partner, The Riverside Co.

aren Pajarillo is a Riverside partner focusing on the health care industry, the firmâ€™s longest-standing area of specialization. Based in San Francisco, Pajarillo has worked on multiple Riverside health care investments. She has prior experience in health care public relations and as an investment banker working in agriculture-related industries.

SELECT ABOVE TO SEE Q&A

HOW WILL CENTRALIZATION OF INFORMATION AFFECT OPPORTUNITIES?

he centralization of health care information resulting from the use of health care IT systems, electronic medical records and accountable care organizations is facilitating the collection of more data, and that holds the potential to drive real change in how health care is delivered. For example, with access to data on treatments and outcomes for a large pool of diabetic patients, it might be possible to develop a standardized protocol to help diabetics better manage their illness. Or, you might be able to use the data to figure out which patients are at risk for developing diabetes and work with their primary care physicians to intervene before a chronic condition develops. As a payor, you might be able to figure out which physicians are treating diabetes most effectively and direct more patients to those doctors. Unfortunately, we arenâ€™t quite there yet. Right now, companies have a lot of data, but they are struggling with what information is relevant and how best to use it.

Photo by Craig Sherod

A QUALIFIED OPINION KAREN PAJARILLO // Partner, The Riverside Co.

SELECT ABOVE TO SEE Q&A

WHAT PARTICULAR CHALLENGES DO HEALTH CARE INVESTMENTS PRESENT COMPARED TO OTHER SECTORS YOU’VE WORKED IN?

n terms of risk, as accountable care organizations and pay-for-performance arrangements take hold, I think you’ll see more consolidation in the health care provider community. For example, we are seeing more hospital systems as consolidators acquiring physician groups. Depending on where you sit, you could be at risk if you’re not properly positioned within that dynamic. In addition, the regulatory landscape for health care is complicated and can be quite onerous. When considering a health care investment, we think very hard about whether there’s a “stroke-of-the-pen” risk such as a reimbursement rate cut that can negatively impact a company. We work with regulatory attorneys and consultants that help us assess risks as well as opportunities. The regulatory environment also adds a layer of complexity to recruiting management to health care companies. For many investments, it is critical that we put in place senior managers who have experience in a particular health care niche. Photo by Craig Sherod

A QUALIFIED OPINION KAREN PAJARILLO // Partner, The Riverside Co.

SELECT ABOVE TO SEE Q&A

CAN YOU TALK ABOUT A FEW HEALTH CARE INVESTMENTS YOU’RE PARTICULARLY EXCITED ABOUT AT RIVERSIDE?

e have many in the sector, but I’d like to talk about two that are well-positioned given current trends. The first is DentalPlans.com. I already mentioned the consumerization of health care. DentalPlans.com is truly a consumer-driven business. Through an online comparisonshopping platform, it offers annual memberships in a range of dental networks from leading companies, such as Aetna and Cigna. Consumers get access to high-quality dental care at more affordable prices, often much less than standard “retail” rates. The other company is Avatar. Avatar provides patient and employee satisfaction surveys and related performance improvement solutions for hospitals and physician groups. Its surveys play a role in how these health care providers are paid in the current performance-based environment; for instance, low patient satisfaction scores can lead to lower reimbursement rates and less revenue for the provider. Avatar’s surveys, which are customized to each patient’s hospital experience, also give providers actionable feedback. Photo by Craig Sherod

Want to tap into the middle market? LEARN ABOUT ADVERTISING OPPORTUNITIES IN MIDDLE MARKET GROWTH AND REACH 30,000+ MIDDLE-MARKET PROFESSIONALS. CONTACT US OR DOWNLOAD THE MEDIA KIT TO GET STARTED TODAY.

DOWNLOAD MEDIA KIT Contact Meredith Rollins at mrollins@acg.org // 312-957-4260

The official publication of

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

NEW YORK SAN FRANCISCO TEXAS

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ACG NEW YORK

ACG Cares New York Hosts Event for Business Students ACG Cares, an affiliate of ACG’s New York chapter, hosted a panel discussion and networking opportunity for undergraduate and graduate students aiming to secure their first jobs in business-related fields. The inaugural event, “Your First Job Through Relationships,” was held April 3 at City University of New York’s Macaulay Honors College. It featured moderators Stephen Prostor, a director at Citi Private Bank, and Michelle Van Hellemont, a director at the finance consulting firm Accordion Partners, LLC. Panelists included Anna Kordas, a student at Brooklyn Law School; Maximilian Moehlmann, senior associate at Riverside Co.; Hector Perez, client service partner at Tatum; and Reshma Shah, a wealth planner. ACG Cares, a 501(c)3 nonprofit, was created to nurture the next generation of business leaders in New York. //

For more information about ACG Cares, visit acgcares.org.

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

ACG TEXAS

Texas ACG Capital Connection® Hosts Former CIA Director Hayden Former CIA Director Michael Hayden was among the featured speakers at the 11th Annual Texas ACG Capital Connection on March 5 at the George R. Brown Convention Center in Houston. The Houston, Dallas/Ft. Worth and Central Texas chapters of ACG welcomed more than 1,200 attendees. Along with Hayden, principal at the security-focused consulting firm the Chertoff Group, were James R. “Jim” Crane, chairman and CEO of Crane Capital Group Inc. and owner of the Houston Astros; Janet Gurwitch, former CEO of Laura Mercier Cosmetics; Charles Lowery, president and CEO of the Lowery Institute for Excellence; Mario Mendias, CEO of My Fit Foods; and Chuck Yates, partner with Kayne Anderson Capital Advisors. Building on earlier successes, Texas ACG hosted 54 sponsoring companies and more than 100 private equity and mezzanine capital firms from Texas and throughout the U.S., representing about $100 billion of available capital. “This conference continues to rank as one of the premier middle-market private equity and M&A conferences in the country,” For more information, visit acgtexas.org.

says Jeff Henningsen, event chairman, partner and executive vice president, M&A, with Lockton Cos. Next year’s conference will be held on Feb. 26 at the Dallas Convention Center. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

QUARTERBACKING ACG SAN FRANCISCO // NFL Legend Joe Montana delivers the keynote address in the city where he gained so much. Tap to play video.

ACG SAN FRANCISCO

ACG San Francisco Hosts Tech-Themed M&A Conference Bay Area technology themes and legendary NFL quarterback Joe Montana were among the draws at ACG San Francisco’s 12th Annual West Coast M&A Conference on March 20 at the Palace Hotel. Dubbed “The Changing Face of San Francisco,” the event included a preconference panel featuring women in private equity. An evening “DealMakers Reception” pulled more than 85 investment bankers, private equity professionals and sponsors to the Fairmont Hotel. Launch day’s “Founders’ Fireside Chat” covered the explosive growth of local tech companies, while “Food & Beverage Innovators: Changing the Way We Eat” explored culinary developments. A panel on tech trends in M&A was moderated by Alexander Meyer, vice president of global business development for SAP Private Equity. Montana delivered the lunchtime keynote, sharing stories of his youth and his father’s hard lessons on mastering the fundamentals of basketball. Luckily for the San Francisco 49ers, Montana’s passion for sports focused on pro football. An afternoon “DealSource Exchange” gave professionals an exclusive space to hold one-on-one sessions, using new match-up software. The conference ended with a sold-out ACG Capital Connection® expo and reception. //

THE PORTFOLIO INSIGHT FROM THE EXPERTS

PE LAW

SOUND DECISIONS

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IN THIS ISSUE PE LAW With the Affordable Care act enrollment phase completed, extensive challenges lie ahead, including complex regulations and increased enforcement.

SOUND DECISIONS As the U.S. moves from a fee-for-service health care model to a value-based approach, new investment opportunities are opening up.

COMING SOON Check out the Portfolio section of the July/August issue for more on the latest middle-market trends, written exclusively by our team of expert ACG Partners. To learn more about contributing to this section, please contact Meredith Rollins, (312) 957-4260. These articles are brought to you by ACGâ€™s Global Partners.

THE PORTFOLIO PE LAW // Mark A. Kadzielski, Esq., Partner, Pepper Hamilton, LLP

PE LAW

SOUND DECISIONS

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Health Care in 2014: A Brave New World

W Health care is approximately 20 percent of the U.S. gross domestic product.

ith the completion of the enrollment phase of the Affordable Care Act (ACA), health care in the United States has entered a new era that will be characterized by extensive changes and challenges for both providers and suppliers. The convoluted landscape of federal and state regulations will become even more complex as regulators ramp up enforcement activities under Obamacare and related statutes. Audits by government agencies on all levels to squeeze health care entities and recover monies slated for expanding access to health care will increase, as will private lawsuits by whistleblowers alleging fraud and abuse. No part of the health care world will

on “bring your own devices” (BYODs),

be spared. Health care suppliers are being

also known as “bring your own disasters.”

pressured from all sides, and physician-

Complying with federal and state privacy

owned distributorships of medical devices

requirements, and having an effective plan

are especially undergoing stricter scrutiny.

in place to deal with the avoidance, detec-

Health care providers are being incentiv-

tion and minimization of privacy breach-

ized to form accountable care organizations

es, is paramount but costly for financially

(ACOs) that bring individual and institu-

strapped health care providers.

tional providers together to receive one

Health care is a significant part of U.S.

bundled payment for the care of an individ-

gross domestic product, approximately 20

ual patient. The long-term viability of these

percent at last calculation. The myriad le-

ACOs, and the multiple operational and

gal issues impacting health care providers

financial issues they face, is uncertain.

and suppliers are increasing exponentially.

In health care operations, privacy

Obtaining competent legal guidance is es-

breaches will occur in astounding num-

sential for providers and suppliers if they

bers, related in part to the increasing use

are to survive in this increasingly compli-

of electronic medical records encouraged

cated environment. //

by the federal government. In addition, the proliferation of personal mobile devices

Mark A. Kadzielski, Esq., a Partner of Pepper

in the health care workplace increases

Hamilton, LLP, is National Head of the firm’s

the risk for such breaches, leading many

Health Care Services Practice and Resident in

health care providers to rethink policies

its Los Angeles office.

THE PORTFOLIO SOUND DECISIONS // Ira N. Gottlieb, Principal, WeiserMazars PE LAW

SOUND DECISIONS

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Affordable Care Act Gives Good Reason to Invest

Urgent care centers have seen substantial growth, from 3,000 facilities in 2003 to 9,300 in 2013.

s the overhaul of the U.S. health care system gets underway, private equity firms are looking to get in on the action.

The Affordable Care Act (ACA) man-

example, urgent care centers have seen

dates sweeping changes to payment and

substantial growth, with the number of

health care delivery models. The world

facilities increasing from 3,000 in 2003 to

is moving away from the fee-for-service

9,300 in 2013, according to the Urgent Care

model in favor of a value-based approach,

Association of America. These centers

with the emphasis on delivering better

provide patients easy access at lower cost.

quality care at a lower cost.

Fifty to 100 new clinics continue to open

This shift is resulting in new opportunities for investment in the health care sector. Meanwhile, previous health care delivery

annually as the number of hospital emergency rooms decreases nationally. Private equity firms have already begun

solutions may become less lucrative. Filling

to show interest in these facilities. With

beds in hospitals is no longer a formula for

Obamacare expected to boost the number

success, as government programs empha-

of insured people by more than 30 million

size cutting overnight stays. CEOs of hospi-

over the next decade, urgent care centers

tal systems need instead to concentrate on

promise to become increasingly popular

new out-patient revenue streams.

with investors seeking to get in on the

“Anything that yields better results at a lower cost is going to grab attention from

ground floor. Venture capital firm Sequoia Capital

both investors and health care organiza-

and private equity firm General Atlantic

tions seeking to remain relevant,” says

were early leaders in this area, with their

Steven Kops, financial advisory services

2010 purchase of MedExpress, one of

partner at WeiserMazars. “We are still in

the top urgent care chains in the United

the beginning stages of what is sure to be a

States. Since then, many private equity

massive disruption in the sector.”

firms have moved into the space, includ-

Some types of health care organizations are already touted as early winners. For

ing LLR Partners and health insurer Well Point, which invested in Chicago-based

THE PORTFOLIO SOUND DECISIONS // Ira N. Gottlieb, Principal, WeiserMazars

PE LAW

SOUND DECISIONS

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Physicians Immediate Care, a chain of 20

Ira Gottlieb

“The industry remains explosive, com-

urgent care clinics; and Enhanced Capital

petitive and growing as the demand for ef-

Partners, which bought NextCare Holdings

ficiency, lower costs and quality care drive

Inc., one of the nation’s larger providers of

the overhaul of medical delivery as we

urgent care with 86 clinics nationwide.

know it,” says John Burke, state president

Homecare, hospice and community-

of New York at WellCare Health Plans. //

based medicine are also receiving positive attention; by keeping patients out of a hospital setting, they, too, are reducing costs. The $18.9 billion hospice industry is projected to grow 7.4 percent each year through 2017. It has caught the attention of private equity firms such as Clearview Capital, which invested in St. Croix Hospice of Minnesota. Kohlberg Kravis Roberts & Company, Summit Partners and GE Capital have also made investments in homecare and hospice providers.

Ira N. Gottlieb is a Principal at WeiserMazars.

THE LADDER ACG MEMBERS ON THE MOVE

Sally Glick

After more than a decade lead-

Terry Keating was named exec-

ing ACG New Jersey, Founding

utive vice president for Accord

President Mark Kuehn, an attor-

Financial, a provider of senior

ney who specializes in advising

debt solutions to transitional

companies, has turned over the

companies. He will lead growth

chapter reins to newly elected

Terry Keating

and expansion initiatives for

Chairman Sally Glick. Glick

the U.S. subsidiary of Accord

is principal and chief growth

Financial Inc., a Toronto-based

strategist for Sobel & Co., a

provider of working capital and

middle-market-focused account-

term lending facilities.

ing and consulting firm. ACG Global President and CEO Gary

Middle-market private equity

LaBranche presented Kuehn

fund Palladium Equity Part-

with the Chairman’s Medallion.

ners (PEP) has closed a new $1.14 billion fund, focused on

Julia Karol has been named a

investing in companies benefit-

principal at Boston-area private

ing from the fast-growing U.S.

investment firm Watermill Group,

Hispanic market.

responsible for managing relaJulia Karol

tionships with investors. She will

Mike McSweeney, senior vice

lead branding, PR and market-

president of global management

ing. John Carr also joins Water-

consulting firm TriVista, was

mill as a principal; he will support

honored by Consulting maga-

the evaluation, due diligence and

zine’s Rising Stars of the Profes-

execution of new investments.

Mike McSweeney

sion–Top 35 under 35 Award for operations management.

John Carr

Dave Wanders

Dave Wanders joins Chicago-

Miami-area investment bank-

based Loeb Term Solutions as

ing firm Outcome Capital LLC

a business development officer.

placed growth financing for Pure

The firm helps manufacturers

Life Renal, a Hollywood, Fla.,

and financial institutions leverage

provider of dialysis services and

industrial assets by managing the

renal care. Capital was provided

life cycle of their equipment.

by Montreux Equity Partners and Noro-Moseley Partners.

To submit your promotions, job changes and other accomplishments, please send information and a color photo (hi-res 300 dpi or above) to Editor-in-Chief Deborah L. Cohen.

IT’S THE SMALL THINGS HEALTH CARE INDUSTRY TRENDS // Checking the Vitals

ELECTRONIC MEDICAL RECORDS (EMRs) INDUSTRY IS E-MAZING The U.S. EMR market is expected to reach $6.05 million in 2015 from $2.18 million in 2009 at an estimated compound annual growth rate of 18 percent during the forecast period 2010 to 2015.

NOT-SO-AVERAGE COST OF HEALTH CARE In 2013, the average cost of health care for an individual in the United States was $5,615, with family coverage tracking at $15,745. Alaska ranks as the most expensive state, and Utah is the least costly.

HAVING A SENIOR MOMENT With the U.S. 65+ population set to double by 2025, the retirement communities sector is growing exponentially and is expected to generate revenue of nearly $70 billion by 2018.

THE ART OF BEING DISCHARGED FROM A HEALTH CARE INVESTMENT Health care continues to attract private equity. In 2013, the number of portfolio company exits hit a 10-year high, with the majority going to strategic players and sizable IPOs.

PUT YOUR MONEY WHERE YOUR BOUCHE IS Private investing in health care abroad is often fueled by growth in the sector. For example, in Eastern and Central Europe, health expenditures will increase by more than 50 percent (from $168 billion to $258 billion).

PRIVATE EQUITY HEALTH CARE’S TOP 10 LIST The top 10 areas in health care slated for private equity investment in 2014 include the usual suspects of hospitals and health systems but also expand into wound care, life sciences, imaging centers and anesthesia.

EVERYTHING’S BETTER IN 3-D The 3-D printing market for health care will generate more than $4 billion by 2018.

THE LEADERSHIP ACG DIRECTORS ACG BOARD OF DIRECTORS //

CHAPTER REPRESENTATIVE DIRECTORS //

DIRECTORS AT LARGE //

Chairman Pamela Hendrickson* The Riverside Company ACG New York Term expires 8/31/2014

Bradford Adams* TM Capital ACG Boston Term expires 8/31/2015

Jason Brown GE Capital Corp. ACG Los Angeles Term expires 8/31/2016

Robert Burns Lazard Middle Market, LLC ACG Minnesota Term expires 8/31/2014

Greg Cinnamon Kilpatrick Townsend & Stockton LLP ACG Atlanta Term expires 8/31/2016

J.B. Dollison* Crutchfield Capital Corporation ACG Houston Term expires 8/31/2014

Mike Ehlert Capital One Leverage Finance Corp. ACG Houston Term expires 8/31/2015

Roy Graham Corporate Finance Associates ACG Central Texas Term expires 8/31/2015

Brian Gilbreath Merrill Corporation ACG Nebraska Term expires 8/31/2015

W. Braun Jones III Outcome Capital, LLC ACG National Capital Term expires 8/31/2014

Ramsey Goodrich Carter Morse & Mathias ACG Connecticut Term expires 8/31/2016

Patricia King Bank of America ACG Tennessee Term expires 8/31/2015

Angie MacPhee RGL Forensics ACG Denver Term expires 8/31/2016

Brian Moll Polsinelli Shughart PC ACG Arizona Term expires 8/31/2014

Frank Mack Merk Capital Corp. ACG Chicago Term expires 8/31/2014

Robert Napoli* First West Capital ACG British Columbia Term expires 8/31/2015

Gretchen Perkins Huron Capital Partners ACG Detroit Term expires 8/31/2016

Steven Peterson Brass Ring Capital, Inc. ACG Wisconsin Term expires 8/31/2015

Durant (Randy) Schwimmer Founder/Publisher, “The Lead Left” and ACG New York Term expires 8/31/2014

Joel Rosenthal Schneider Downs & Co., Inc. ACG Pittsburgh Term expires 8/31/2014

Tom Washbush Bricker & Eckler LLP ACG Columbus Term expires 8/31/2015

Hans-Josef Vogel Beiten Burkhardt ACG Germany Term expires 8/31/2015

ACG HONORARY DIRECTORS //

Vice Chairman Doug Tatum Newport Board Group ACG Atlanta Term expires 8/31/2014 Chairman of Finance Stephen V. Prostor Citi Private Bank ACG New York Term expires 8/31/2014 Secretary Richard P. Jaffe Duane Morris LLP ACG Philadelphia Term expires 8/31/2014 Immediate Past Chairman Charles J. Morton, Jr.* Venable LLP ACG Maryland Term expires 8/31/2014 Chairman of InterGrowth 2014 Ken Berryman CapitalSouth Partners ACG Kentucky Term expires 8/31/2014 President & Chief Executive Officer Gary A. LaBranche, FASAE, CAE* ACG Global

Robert G. Coffey Alan B. Gelband

*denotes member of Executive Committee

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Weâ€™ve built our family business over three generations. Thanks to capital and advice provided by private investors, we will keep the business growing long into the future. Our family is the story of middle-market growth. We Are Private Capital.

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Association for Corporate Growth

Published on Jun 1, 2014

Middle Market Growth - June 2014

The official publication of the Association for Corporate Growth (ACG)

Middle Market Growth - June 2014

Published on Jun 1, 2014

The official publication of the Association for Corporate Growth (ACG)

middlemarketgrowth

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