CALEDONIA — A Boston fund’s $170 million cash deal for Caledonia-based Aspen Surgical typifies the growing interest private equity has for investing in health care companies.
Private equity investors in recent years have migrated to health care, a sector viewed as recession-resistant and a growth industry that offers strong returns.
“Health care is really attractive. People are looking at the lack of cyclicality to it and saying, ‘That’s really attractive,’” said Rajesh Kothari, managing director at Southfield-based investment banking firm Cascade Partners LLC. “There are more elements of the health care world that are evolving. What used to be medical devices and pharma has evolved into huge growth just in businesses services.”
Kothari cites health care I.T. as a “huge sector” right now for investment and “will actually be an area that grows dramatically,” driven by a need to generate efficiencies and heightened cybersecurity concerns.
Private equity investments in physician practices also have been rising, he said.
“I don’t see it slowing down unless there’s an overall market slowdown. The amount of interest and the amount of success will continue to drive (activity),” Kothari said. “Health care, unlike many other industries, is growing, and the more change that you have in an industry, the more opportunity it creates for growth because people are going to come up with new services and new capabilities that meet the needs of a particular market. That is going to drive interest (from investors).”
Across the U.S. from 2008 to 2018, private equity deals in health care more than doubled both in the number of deals and overall transaction value. Investments grew to 854 deals for $100.3 billion last year, up from 329 deals for $31 billion a decade earlier, according to a recent report from Pitchbook.com.
Both the number of deals and the value fell off its recent pace during the first half of 2019. Pitchbook counted 295 private equity deals in health care during the first half of the year with a collective value of $33.3 billion. That compares to 301 deals valued at $37.7 billion for the first six months of 2018.
‘Best in breed’
In the latest deal locally, parent company Hill-Rom Holdings Inc. this month entered a definitive agreement to sell its Aspen Surgical business unit to Boston-based Audax Private Equity. Under the deal announced July 11, Aspen Surgical, a maker of scalpels and other surgical products, will become a platform company for Audax.
The deal, which includes “certain surgical consumable products and related assets,” is expected to close in the fourth quarter of Batesville, Ind.-based Hill-Rom’s fiscal year, subject to closing conditions, according to a statement.
Audax plans to continue growing Aspen Surgical, whose products it describes as “best in breed and standard of care.”
“We are looking forward to working with this team to help hospitals and (ambulatory surgery centers) enhance safety for patients and providers,” Audax Managing Director David Wong said in a statement. “We believe that the Company is poised for growth and Audax will bring the expertise and resources to continue to build the product portfolio.”
The divested products generate approximately $100 million in annual revenue, according to Hill-Rom.
Aspen Surgical currently employs about 500 people at locations in Caledonia and Puerto Rico and manufactures a range of branded and private-label single-use surgical products. Its products include the Bard-Parker brand of safety scalpels.
Grand Rapids entrepreneur Daniel Bowen founded Aspen Surgical in 1999 and later sold the company to Lake Forest, Ill.-based RoundTable Healthcare Partners in 2006. Hill-Rom originally purchased Aspen Surgical for $400 million in July 2012.
“The company has historically grown both organically and through acquisitions, and we are thrilled to join them as we continue to build on past successes,” stated Audax Managing Director Young Lee.
Audax invests in middle market companies in a range of industries, including health care, business and consumer services, technology and energy. The firm, known for its “buy and build” strategy, has invested more than $5 billion since its inception.
For the $2.85 billion Hill-Rom, a producer of medical beds and equipment, the sale will help the company focus its resources on “high-growth, high-margin categories” in its portfolio, according to President and CEO John Groetelaars.
Audax was advised on the deal by the law firm Kirkland & Ellis LLP. Goldman Sachs & Co. LLC was the financial adviser for Hill-Rom, which used the law firm Jones Day.
Within the medical device sector locally, the proposed Audax acquisition of Aspen Surgical follows the 2018 deal in which Philadelphia, Pa.-based private equity firm Graham Partners acquired a majority stake in Medbio Inc., a Grand Rapids-based manufacturer of injection moldings, assemblies and packaging for the medical device and biotech industry.
Medbio went on in February to acquire Clinton Township-based AIM Plastics Inc., a niche injection molding company for the medical device industry.
Globally, private equity investments in health care hit a record $63.1 billion across 316 deals last year, up from the 265 deals valued at $42.6 billion in 2017, according to New York City-based management consulting firm Bain & Co.
In an April report, Nirad Jain, co-head of Bain & Co.’s global healthcare and private equity and corporate M&A practices, described 2018 as an “incredible year” for private equity deals in health care, momentum that “shows no signs of abating.”