Function: Deal Team
Strategic Buy-Side Search in Healthcare Services
Industry: Healthcare Services
Service Area: Commercial Due Diligence
Client Type: Lower-Middle Market Firm
Service Provider Type: Buy-Side Advisory Firm
The Need
Multi-Site Roll-Up Strategy in Healthcare Services
A lower-middle market private equity firm, with a successful history in executing multi-site roll-up strategies, sought to delve into the healthcare services sector. Their vision was clear: identify a healthcare practice that resonates with their investment thesis, marking the inception of a broader roll-up strategy. The ideal acquisition would be a multi-doctor practice in the Midwest, South or Southeast, boasting more than $5 million in annual net collections and an entry EBITDA above $2 million.
The Challenge
Precise Buy-Side Search
The challenge was twofold: identifying a healthcare practice that not only met the stringent financial criteria but also aligned with the firm’s strategic vision for a multi-site roll-up. The firm sought a partner who would reinvest back into the business, ensuring a synergy that would fuel the envisioned growth and expansion. The search required a nuanced understanding of the healthcare services sector, coupled with a strategic approach to identify practices that resonated with the firm’s investment thesis.
How BluWave Helped
Facilitating a Connection Tailored to Strategic Success
BluWave utilized its extensive network to connect the firm with a specialized buy-side advisory firm. This partnership was instrumental in navigating the complexities of the search, leveraging deep industry experience and a nuanced understanding of the private equity landscape. The advisory firm’s strategic approach and geographical insights were pivotal in identifying healthcare practices that aligned with the firm’s vision and investment thesis.
The Result
Poised for Transformative Growth
Through the connection facilitated by BluWave, the firm was empowered to execute a strategic buy-side search that resonated with their investment thesis. This partnership has set the stage for the identification of promising healthcare practices, ready to be woven into a transformative multi-site roll-up strategy that echoes the firm’s vision of growth and success in the healthcare services sector.
What Makes a Commercial Due Diligence Firm ‘Specialized’?
Private equity firms face fierce competition for new deals. Even when the economy is strong, there could be dozens of groups vying for the same target.
When the deal market is stagnant, though, it can seem impossible to find a viable acquisition, let alone have the winning bid.
BluWave founder and CEO Sean Mooney encountered this challenge in his nearly 20 years in private equity.
“As the competitive tension of supply and demand intersected in private equity with more and more capital under management, chasing the same supply of deals was causing pressure for me to say, ‘I can’t just be a market taker anymore,’” Mooney recently shared. “’The surplus is being skimmed. I have to see something that no one else can see.’”
Mooney since started the Business Builders’ Network to help other leaders solve this very problem. He recently spoke with Andrew Joy, partner at Hidden Harbor, about how PE firms use specialized commercial due diligence providers to cut through the noise and rise above competitors.
So how do the world’s top private equity firms distinguish themselves in this cutthroat environment? One way is through commercial due diligence.
What is Specialized Commercial Due Diligence?
Specialized commercial due diligence can only be performed by firms that have deep experience in the target’s specific industry and are ready to go well below the surface to provide exclusive insights.
At a high level, a commercial due diligence project usually involves looking at a company’s market size, its total addressable market, conducting a competitive analysis and performing a voice of customer study.
READ MORE: What is Commercial Due Diligence?
“The goal of commercial due diligence is to validate the story that the target’s telling or to identify the reality of the marketplace out there so they can make an informed decision,” according to Don Jenkins*, the founding partner at one of the specialized diligence firms in the BluWave network.
While the details of the process are much more nuanced, a world-class CDD firm will be able to get up to speed faster, give private equity firms a deeper understanding of the business and equip them with a significant competitive advantage over other PE firms that conduct more general due diligence.
Looking Beyond the Acquisition
When PE firms consider buying a business, they aren’t just thinking about its present-day value. They’re also evaluating what an exit will look like and how much value they can create long-term once the company is no longer in their hands.
That’s why it’s so important for them to thoroughly investigate every potential target. Mooney said that PE firms have moved beyond a “trust but verify” mindset and are looking even longer term than they may have been a decade ago.
“You’re not building for the next five [years] because if nothing else, if you’re going to sell to the next person, there’s got to be some cream left to build it,” Mooney said. “If you’re only thinking three to five years ahead, you’re playing a chess versus checkers game.”
Differentiated Data
“As information and data have become more commoditized and more accessible, it’s becoming harder and harder to really find areas where you have a competitive advantage,” Joy said. “We like to say, ‘What’s our angle on this target or deal?’”
Mooney noted that investment banks do a great job exposing as much value creation as possible within a company. But PE firms that don’t dig deeper are going to be working from the same perspective as everyone else.
READ MORE: Data Consolidation: Benefits, Challenges, Processes
“The undifferentiated commercial diligence firm is calling the expert networks to get the insights about the markets that they’re sharing,” Mooney said. “Odds are if one over the other is not using a specialized group that sees something that the expert networks don’t, everyone’s getting beta. They’re spending hundreds of thousands of dollars on the sell-side study, which is calling two or three market network expert networks.”
Joy said that when PE firms use the same tools as everyone else, “that’s just the ante to get into the game.”
He added: “You really have to then figure out how this target or this opportunity fits within an angle that you can play. Whether that’s operationally, whether that’s commercially, so that you can justify to your committee why we think this asset is more valuable and we’re going to be the winning bid.”
Closing with Confidence
When commercial due diligence is done right, private equity firms can make acquisitions with confidence.
“By the time we close on a transaction, we have a really strong hypothesis around what are the value-creation levers that we are going to pull over our whole period to create outsized market returns,” Joy said. “And that’s informed by the commercial due diligence.”
When Hidden Harbor is deciding on a target, Joy said they like to ask where the company’s right to win is, and how they can get there.
“It’s amazing to see sometimes and that when you do a full cycle of investment from closing to selling and you look back and you say, ‘What were the three biggest value-creation drivers of our return?’ And you’re able to say, those were the three that we identified in diligence. That’s pretty powerful to have that amount of conviction and be right about that and being validated.”
BluWave has a close relationship with a deep bench of world-class, specialized commercial due diligence providers.
Each one has been vetted before joining the invite-only network and is re-vetted before they’re matched with private equity firms.
When you contact our research and operations team, they’ll connect you with a shortlist of service providers – with industry-relevant experience – in less than 24 hours.
Start your project today to get the differentiated insights that a specialized commercial due diligence provider can uncover.
*Privacy is important to us. While the source and company name have been changed, these are real quotations from a real service provider in the BluWave Business Builders’ Network.
A Wave of Deals is Coming: Commercial Due Diligence for When the Tide Rolls In
A Wave of Deals is Coming: Commercial Due Diligence Webinar
The private equity deal market has been slow in 2023. There are signs, however, that that could change soon.
In fact, BluWave founder and CEO Sean Mooney believes PE is ready to “call a bottom” based on proprietary internal data. That means that firms must have their due diligence resources lined up ahead of the anticipated wave of deals this fall and beyond.
Mooney was recently joined by BluWave Head of Technology Houston Slatton and Hidden Harbor CP Partner Andrew Joy to discuss the intricacies of commercial due diligence on a live webinar.
Here are some of the top takeaways from their conversation:
Understanding Target Markets
The panel touched on how commercial due diligence is pivotal in assessing market conditions.
“The definition of commercial due diligence in my mind is a synthesis of all factors, both historically and in the future that affect the growth and the competitiveness of the target in that particular model,” Joy said.
This “synthesis” involves myriad factors, from end-market demand drivers to regulatory inputs and global competition. The goal is to understand not just the immediate future but to project growth and trends 10-20 years ahead.
“Commercial due diligence is a term of art for a market study,” Mooney added. “It’s standard operating procedure by the best private equity investors in the world.”
READ MORE: What is Commercial Due Diligence?
The Role of Due Diligence in Bid Strategy
The competitive landscape of private equity demands a unique approach to bid strategies.
Mooney said private equity firms aim to see something unique in their investment targets that others don’t.
“One of the big trends is investment bankers are starting to put sell-side commercial due diligence studies in the data rooms,” Mooney said. “The incentive may be for private equity firms, ‘Oh, this is great, I can rely on the money that they’ve spent and I’ll just take their word for it.’ “But a newsflash is, if you’re buying the market study, you get to pick what it says so you can frame it.”
He added that that’s one of the reasons the private equity industry still uses its “own source of truth.”
Joy elaborated on other challenges PE firms are facing.
“I think as information and data has become more commoditized and more accessible, it’s becoming harder and harder to really find areas where you have a competitive advantage,” he said.
Finding that unique angle in a saturated market can make all the difference for a firm.
READ MORE: Buy-Side Commercial Due Diligence Strategies
Choosing the Right Commercial Due Diligence Provider
The choice of a due diligence provider can make or break a deal.
Mooney emphasized the importance of team experience and relevance.
“When you’re vetting your group, I’ll show exactly how we do it. It’s ‘What is your experience in the defined industry you’re exposing? Which projects have you worked on in this industry?’ When did they work on it? Who is the team that worked on it?”
In the end, he said, it comes down to ensuring that the diligence team has relevant experience with the target, the market and the industry.
“I think it’s really finding the right team that has the most relevant experience and just knows the market cold,” Joy added.
Mooney also warned against trying to pull an up-market firm down to your budget. Because of scarcity of resources, this could mean they don’t put their best team members on your project.
As the PE world braces for influx of new deals, having your diligence sources lined up ahead of time is key. To learn more about how to prepare, you can watch the webinar on demand.
If you would like to hear about the commercial due diligence resources in the Business Builders’ Network, contact our research and operations team to scope your need.
Panelist Bios:
- Sean Mooney, BluWave Founder and CEO
- Houston Slatton, BluWave Head of Technology
- Andrew Joy, Hidden Harbor CP Partner
Matt Cole, SBJ Capital | No One Gets Through Life Unscathed: A Guide to Private Equity Problem Solving
Gabe Mesanza, Huron Capital | An Expert Perspective on Culture, Growth and Cash Flow in Private Equity
Healthcare Compliance: Due Diligence Checklist
Healthcare is a hot sector for private equity firms looking to acquire new portfolio companies.
Buy-side commercial due diligence on healthcare compliance is table stakes before any deal gets done.
One expert service provider from our network says his firm has seen an influx of diligence requests in this industry since the beginning of 2022, and it hasn’t slowed down since.
“There continues to be a lot of interest in the healthcare sector, whether it’s device manufacturers or contract manufacturers, and even services,” Don Jenkins* of M&A Healthcare Experts says. “Whether it’s tele-health-related services or just other technology platforms that can address healthcare service delivery.”
Here are some of the top trends and must-haves in healthcare due diligence.
Private Equity: Healthcare Sector
With so much money to spend on hand, Jenkins says that middle-market private equity is all over the map.
When he thinks about the last 50 projects they have done for private equity firms, he estimates they would span 20 different markets.
There are a couple, however, that have stood out since as we head deeper into an uncertain, if not turbulent economy. One of those is healthcare.
Firms want to dig deep to learn more about the devices and software systems being used in hospitals. Just as popular, though, are in-home services that allow people to receive diagnosis and treatment from the comfort of their home. This trend has become especially important since the onset of COVID.
Healthcare Due Diligence Process
“Essentially the goal of commercial due diligence is to validate the story that the target’s telling, or to identify the reality of the marketplace out there so that they can make an informed decision on their investment,” Jenkins says.
While the fundamentals of commercial due diligence are the same from one market to another, there are nuances to businesses based in hospitals, pharmacies and other related medical organizations.
Since these companies are creating or using products that affect people’s health, there’s increased risk, which means more scrutiny is needed.
“It can be a very different set of objectives, but if it’s a product, then there definitely will be regulatory issues involved,” Jenkins says.
Top Trends in Healthcare Due Diligence
Service providers in healthcare aren’t just trying to make better products and improve services, they also want to be more affordable.
“It’s still technology, but we’re not trying to design the greatest device, the greatest stent in the world, or the greatest cardiovascular diagnostic product ever made,” Jenkins says. “It’s really what sort of products and services can we develop that are going to not only get the job done, but do it in a more cost-effective manner so that it’s more affordable for the healthcare ecosystem.”
In particular, that ecosystem includes insurance providers and patients. The easier it is for them to engage with a health company’s products or services, the more successful the business will be.
“There are just a lot of moving parts in healthcare that make it an interesting space,” Jenkins adds.
BluWave co-head of research and operations Scott Bellinger most frequently fields calls related to these areas:
- Medical Devices: “Regulatory review on manufacturing processes to make sure they’re FDA compliant.”
- Operational Diligence: “Understand how you can manufacture those devices at a faster more efficient clip.”
- Ancillary Service Buildouts: “For example, if you’re ear, nose and throat, do they have an ambulatory services center?”
Jenkins isn’t the only one seeing an increased demand for commercial due diligence in healthcare. It continues to be one of the most important industries to our clients as well.
That’s why we spend so much time connecting with and evaluating due diligence service providers who know healthcare – and every other sector that touches private equity – inside-out, backward and forward.
Our research and operations team takes a hands-on, white-glove approach to every project they service, from the first scoping call until after the engagement is complete.
If you’re looking for proven, PE-grade service providers to conduct buy-side diligence on your healthcare acquisition, contact us today. We’ll provide two or three best-fit options for your exact situation and specific needs within a single business day. From there, we’ll hold the third-party resource accountable and make sure they’re meeting all your needs until the ink is dry.
*Privacy is important to us. While the source and company name have been changed, these are real quotations from a real service provider in the BluWave Business Builders’ Network.
What To Do When Your Service Provider is at Capacity
Connecting with a service provider you can trust is like looking for a great dentist. Once you find “the one,” you wouldn’t put your teeth in anyone else’s hands.
The same goes for your business. After a successful engagement with a trusted third party, you save a lot of time by contacting them directly the next time you have a need.
There are reasons you have go-to service providers: they’re fast, reliable and they know your business.
But if you love them so much, you’re probably not their only client. Far from it.
So what happens when you reach out and they tell you they simply don’t have the capacity to take on more work on the timeline you need? Or worse yet, they give you their B-team.
We’re glad you asked.
There are a number of reasons service providers could suddenly be in high demand. A bounce-back from a recession. A surge in deal flow. A hot new trend of which everyone’s trying to stay ahead.
When this happens, BluWave is on standby with a deep bench of trusted, PE-grade third parties who can deliver the exceptional work you expect no matter what your industry.
In fact, we experienced this post-COVID recovery when the whole world got back to business at once and it seemed like there wasn’t enough help to go around. At that time, we heard from dozens of private equity firms that couldn’t book their preferred third-party resource.
We helped those firms by connecting them with industry-specific firms and consultants that understood their business’s most pressing needs.
Every service provider in the Business Builders’ Network has gone through a rigorous vetting process, giving us confidence in every match we make whether it’s a first-time engagement or a repeat relationship.
BluWave founder and CEO Sean Mooney has three tips for organizations when their usual service providers are at full capacity.
1) Use Alternatives
“If you’re go-to is sold out, don’t try to force them into giving you capacity. You’ll get the C team,” Mooney says. “There are plenty of other comparable PE-grade specialists that you should use.”
2) Use Substitutes
“There are other diligence and value creation products that go by a different name but still serve your need,” he adds. “For instance, if you can’t get a commercial due diligence group to meet your deadline, use a voice of the customer group to do a deep dive on your target’s customers.”
3) Use Independent Consultants
“There’s a select world of independents who spun out of name-brand shops and can give you the same product at a fraction of the cost,” Mooney says. “This cohort works well not only for commercial diligence, but also for operational and HR diligence as well as value creation.”
Mooney recognizes that trusting your most important work to new partners can be scary. With the right introduction, though, the risk can have a huge payoff.
“Using new groups can be nerve-racking,” he says, “but the BluWave network of PE-grade resources is on standby to meet your specific needs.”
Whether your go-to service providers are at full capacity, or you just don’t know who to turn to, give our research and operations team a call. They’ll connect you with a shortlist of exact-fit third parties within a single business day, and be by your side until the completion of the project.
Market Study for Financial Services Acquisition Target
Service Area: Commercial Due Diligence
Client Type: Upper-Middle Market Private Equity Firm
Service Provider Type: Strategy – Market Study
Industry: Professional Services
The Need
Niche-Specific Financial Services Market Study
An upper-middle market PE firm wanted to conduct a comprehensive market study on an acquisition target: a company that provides part-time finance resources and accounting services to non-profits.
The Challenge
Navigating Multifaceted Industry
The challenge lay in dissecting the multifaceted industry landscape, combining accounting, consulting and staffing. The market study would need to reveal client behaviors, buyer dynamics, TAM and competitive landscape.
How BluWave Helped
Strategic Connection for Deep Market Insights
BluWave identified a market study firm with:
Non-profit Expertise: Specializing in financial services, offering insights into accounting, consulting and staffing dynamics.
Comprehensive Analysis: Explored client behavior, buyer landscape, competitive positioning and growth potential in nonprofit financial services.
Future-Forward Focus: Investigated data analytics and cloud synergy with nonprofits, enhancing AI/ML capabilities and implementation strategies.
The Result
Study that Surpasses Expectations
The market study revealed all the PE firm had hoped for and more:
Holistic Understanding: Unveiled nonprofit finance nuances, including part-time resources and consulting, providing a comprehensive sector view.
Strategic Opportunities: Analyzed client behaviors and growth prospects, empowering the PE firm with expansion strategies.
Future Resilience: Explored data analytics and cloud services’ role in nonprofit finance, boosting sector resilience and innovation.
Navigating an Intercontinental Aerospace Merger
Service Area: Merger Planning & Integration: Post Merger Integration
Client Type: Middle Market Private Equity Firm
Service Provider Type: Post Merger Integration Consultant
Industry: Manufacturing: Aerospace
The Need
Forging Unity Across Borders
When a middle-market private equity firm acquired an international aerospace entity, the challenge of seamless integration across borders emerged. Seeking expertise beyond their organization, they turned to BluWave for strategic matchmaking with a post-merger integration (PMI) specialist.
The firm understood the critical role of effective integration in maintaining business continuity and customer trust, and they wanted outside help to do it.
The Challenge
Bridging Gaps in Aerospace Integration
With a multi-country aerospace entity acquisition, the complexities of integration spanned geographical, operational and cultural dimensions. The task of harmonizing processes, systems and customer interactions across 14 countries presented a formidable challenge. The focus was on preserving customer trust, especially with industry giants, while optimizing operational efficiency in the global landscape.
How BluWave Helped
Industry-Specific Resource with International Experience
BluWave’s intimate knowledge of the world-class service providers in its network accelerated the PE firm’s selection of an exact-fit service provider:
Expert Identification: BluWave knew exactly which PMI specialists had aerospace knowledge and cross-border integration experience.
Customized Matching: Through a thorough assessment of the client’s requirements, BluWave matched them with a PMI consultant whose expertise aligned with the specific challenges of aerospace integration.
Strategic Alignment: BluWave ensured that the chosen PMI expert understood the client’s objectives, including maintaining customer trust, achieving operational efficiency and realizing synergies.
The Result
Achieving Integration Excellence
The PMI specialist delivered for the PE firm across the board:
Seamless Transition: The acquired aerospace entity underwent a smooth integration, preserving customer relationships and business continuity.
Operational Excellence: Cross-border collaboration and efficient integration processes contributed to optimized operations.
Customer Trust: Through meticulous execution, customer trust and satisfaction were upheld, especially with industry giants.
Manufacturing Growth through Market Insight Diligence
Service Area: Commercial Due Diligence: Market Study
Client Type: Middle-Market Private Equity Firm
Service Provider Type: Market Research Firm
Industry: Manufacturing
The Need
Seizing Growth Potential in Heat Treating
Our middle-market private equity firm client sought to empower its portfolio company operating in industrial manufacturing. The portco was a leader in gas nitriding technology, primarily catering to the automotive, aviation and industrial sectors. The firm aimed to broaden the company’s horizons by identifying new opportunities within heat treating, especially in areas beyond gas nitriding. The goal was to expand its offering through strategic add-ons that leveraged different heat treating technologies, driving further growth and market penetration.
The firm knew it would need a world-class commercial due diligence resource to match its ambitions.
The Challenge
Navigating the Complex Industry Landscape
The private equity firm faced the challenge of exploring a highly specialized sector – heat treating technology – to identify viable add-on opportunities. The task required pinpointing key players, understanding market drivers and evaluating potential target companies that aligned with the portfolio company’s capabilities and ambitions. Budget constraints demanded resourcefulness in delivering valuable insights without compromising quality.
How BluWave Helped
Industry-Specific Research Firm To Drive Expansion
BluWave connected the private equity firm with a PE-grade resource to conduct an in-depth market study, leveraging their expertise in market research and manufacturing. They then uncovered key players, market trends and drivers within the heat treating technology sector. Leveraging their understanding of the end-use industries, including automotive and aviation, the firm identified strategic alignment opportunities.
Their familiarity with furnace manufacturing, heat treating elements and component industries enabled them to analyze competitive processes, production methods and best practices.
The Result
New Pathways to Expansion
The third party firm’s market study equipped the portfolio company with a roadmap for expansion in the heat treating sector. By identifying key players, drivers and market trends, the private equity firm gained insights into new growth avenues. The study not only laid the groundwork for strategic add-on acquisitions but also provided a broader understanding of market dynamics, fostering informed decision-making.
The portfolio company was empowered to consider new technologies and approaches, aligning its offerings with the evolving demands of the automotive, aviation and industrial sectors.