Over the past decade, private equity investments in healthcare have grown dramatically with “… annual deal values [increasing] from $41.5 billion in 2010 to $119.9 billion in 2019, for a total of approximately $750 billion over the last decade.” In the coming years, experts like Mark Hauser of Hauser Private Equity anticipate this rate will continue to rise.
Mark Hauser is an experienced, driven, and successful entrepreneur, investor, and business leader who has launched and grown several businesses during his career. He is the founder and managing partner of Hauser Private Equity, a hybrid private equity fund management firm based in Los Angeles, California, that uses a unique and successful strategy of co-investing directly in lower market and middle-market assets through partnerships with control buyout funds. Mark Hauser is also the chairman of HAUSER, a Cincinnati, Ohio-based insurance brokerage firm.
Private Equity in Healthcare
Mark Hauser shares that, according to recent data, the “explosive growth [in the sector] is being driven by a perfect storm of projected increases in healthcare spending, tremendous stores of uninvested capital already dedicated to private equity funds, and market disruption caused by the COVID-19 pandemic.”
The rise in capital allocated to the healthcare industry has raised concerns among many professionals who believe the trend is focused more on making profits than providing adequate patient care. Mark Hauser, however, reveals how capital from private equity firms can help improve the healthcare industry.
Benefits of Private Equity in Healthcare
Capital from private equity firms provides the healthcare industry an opportunity to advance and increase efficiencies by introducing new technologies and enabling businesses to grow while condensing human resources, accounting, and billing departments. These investments provide solutions for hospitals and other healthcare practices that are facing financial struggles or those that are having trouble complying with regulations and provide resources for healthcare establishments to introduce innovative services and products that they would otherwise ignore due to lack of capital.
The opportunities that private equity funding brings to the healthcare sector are believed to surpass any potential drawbacks. Mark Hauser shares the perspective of two leading experts who have elaborated on the topic.
Mark Zitter, the founder of Zitter Health Insights, explains, “… private capital can fuel the growth of companies that are improving healthcare, and innovative provider and payer models that add value are scaling faster due to this funding. [Private equity] capital often is crucial in enabling small firms with big ideas to reach scale, which not only helps those firms and their customers, but sometimes creates a new market.” He continues, “It’s important to note that [private equity] firms offer much more than just capital. These firms help their portfolio companies grow not only with funding but through business advice, hiring, contacts, diagnostics, systems development, interim executives, and more. Of particular importance is assistance with mergers and acquisitions, which often is a key part of a company’s growth strategy. The typical entrepreneur has never acquired a company and is likely to flub it the first time, whereas most [private equity] firms are highly experienced with mergers and succeed with the majority of them.”
Meanwhile, Francis Nahas, chief strategy officer at Smith Technologies states, “Ultimately, the opportunities to improve healthcare in the U.S. are tremendous, and there are a number of ways private capital can help us do that.”
The Impact of COVID-19 and the Future of Private Equity in Healthcare
Unfortunately, the pandemic has created a sense of discontinuity in the healthcare industry. Although widespread vaccination has led to the emergence of a “new normal” in some places, the global crisis has permanently transformed how people live, work, and play, and continues to impact healthcare providers thanks to supply chain issues and labor shortages.
With discontinuity, however, comes opportunity. Among the positive shifts in the healthcare industry have been “technological innovations – including digital tools that redefine how patients interact with care, the use of artificial intelligence in drug discovery, and software that enables value-based care.” Such progress has helped companies build new business models and have attracted the attention of private investors seeking higher returns on investment.
Private equity firms are better equipped than public entities to deal with the disruptive nature of today’s healthcare sector because they possess the resources and expertise to conduct thorough due diligence and plan for value creation. Indeed, new sources of capital have emerged in the form of infrastructure funds, growth-equity funds, sovereign wealth funds, hedge funds, and crossover funds.
The near- to medium-term future will see more private equity firms investing in healthcare assets, according to Mark Hauser. “The next few years are bound to bring substantial changes to an industry used to moving at a glacial pace. Healthcare investors who create value – in both health improvements and the financial returns that follow – will be the champions who stand out in the years to come.”
Hauser Private Equity Invests in Healthcare
Mark Hauser and Hauser Private Equity long ago recognized the potential in the healthcare sector and began investing in healthcare companies. Over the years, the firm has directly invested in numerous companies that work toward improving both the patient and doctor experience. Here’s a glimpse of the companies Hauser Private Equity has invested in recently:
- Stat Health is an urgent-care provider that offers management services to a chain of urgent care centers. Staffed by board-certified emergency medicine physicians, it provides unscheduled treatment options for minor injuries and common illnesses at a fraction of the time and cost of emergency care.
- Cincinnati Eye Institute (CEI), an ophthalmology practice. As of 2018, CEI reportedly had 14 clinical centers, three ambulatory surgical centers, more than 60 practicing ophthalmologists, and optometrists, with more than 200,000 patient engagements. The company completes more than 25,000 surgical procedures annually.
- Virginia Eye Consultants (VEC), a 17-provider ophthalmology group that, at the time of Hauser Private Equity’s investment, had four established clinics and one ambulatory center.
- Omni Ophthalmic Management Consultants (Omni), an optometric referral practice that provides a full range of specialty services for the advanced treatment of eye disease and is a portfolio company of NMS Capital (NMS).
In addition, Hauser Private Equity has directly invested in Doctor’s Best, a manufacturer of dietary supplements developed through scientific research and clinical studies, and Injured Workers Pharmacy, a national home delivery service that works on behalf of injured individuals.
Looking Forward
Private equity investment in healthcare has grown dramatically over the past decade and is expected to continue to grow in the short term. While critics suggest such investments can harm hospitals and reduce the quality of patient care, supporters like Mark Hauser argue it can actually increase innovation in the industry. Private investors, for example, can assist in the development of key technologies like mobile apps and smart devices that allow patients to take a more active role in managing their health.
For private equity firms looking to invest in the healthcare sector, it is important to take a proactive role in establishing and maintaining positive relations with healthcare providers. What may not be clear at the beginning of a private equity deal is that a prime concern should be to figure out how to make the relationship work by confronting and resolving any potential conflicts between investors and business owners on expectations. If handled well, it seems clear that partnerships between private investors and healthcare companies can produce highly successful outcomes.
About Mark Hauser
Mark Hauser is a private equity investor and fund manager with more than 35 years of investing and operating company experience. He is the founder and co-managing partner of Hauser Private Equity, a Cincinnati-based hybrid private equity fund management firm. Founded in 2008, the company is an outgrowth of the highly successful Hauser Capital Partners. Hauser Private Equity focuses on direct co-investments in the lower-middle to middle-market range. The firm’s four funds have invested more than $300 million worth of capital in privately owned businesses nationally across a diverse set of industries.
Mark Hauser earned a bachelor of business administration degree from Miami University. Early in his investment career, Mark Hauser was vice president of Cincinnati-based Reynolds Dewitt Securities. His merchant banking work there resulted in public offerings of Mid-American Waste Systems, Future Healthcare, and Health Images. During his career, Mark Hauser has served on the board of directors for consumer goods and food and beverage brands. He has also served on boards for government-contracted security and defense businesses and digital advertising and textile manufacturing.
