Your focus areas include information and business services and healthcare. What areas do you find most attractive these days?
We focus on two segments that together represent about 40 percent of the U.S. economy. We think that 40 percent represents some of the most attractive areas for private equity investment. In those two industries, we break them down into subsectors and identify which subsectors have more opportunity for growth.
In the healthcare area, we are very aware of Obamacare, the Affordable Care Act, as it is being implemented. We’ve been focused on investing in companies that are part of the solution to the overall healthcare problem, such as companies that serve providers to help them provide higher quality healthcare at lower cost and more efficiently. We think these service-oriented companies have tremendous opportunity to continue to grow.
On the information/business services side, we’re focused on the innovation and the continual change in the adoption of technology to drive efficiency and productivity in corporate America. We’re looking for businesses that benefit from those secular trends, whether they are security technologies or cloud computing or other innovations. Technologies that didn’t exist five or 10 years ago are now commonplace in corporate America.
There used to be a saying in technology that you are either part of the steamroller or you’re part of the road. What do you do to avoid becoming part of the road in a fast-changing area like info tech?
Innovation in technology is both an opportunity and a challenge. We try to find businesses that are not creating new technology but rather using existing, proven technology as part of the solution set to provide a comprehensive offering to their clients, to allow those clients from a business process point of view to improve what they’re doing and become more efficient.
You mentioned Obamacare, the Affordable Care Act. Does the uncertainty in Washington affect the way you might invest in healthcare?
Yes, the uncertainty is affecting deal activity especially as it relates to businesses in the actual delivery of care. As a result, you see a lot of people on the sidelines waiting to see how this is implemented over the next year or two or three.
As you make short term decisions about buying and selling companies, how do you factor that uncertainty into your process?
We’re trying to identify companies in the healthcare ecosystem that are part of the solution to the challenges that we know exist. We’re seeking value-added providers to not-for-profit groups, for physician groups, for insurers, which can help them become increasingly competitive, to deliver their services in a more cost-efficient way, so they are improving their quality of care at lower costs. Even five years ago, we were more provider-centric, physician groups or hospitals, key components of the delivery system. Today we’re more focused on companies that are providing services to that provider network, to help them become more efficient.
Your firm has been around 35 years, a stage where many firms would be winding down and some of their principals cleaving off to form new firms. By contrast, your firm has been staffing up. What does the future look like for you?
We have tremendous confidence in the franchise we have developed here over the last 35 years and the professional talent we have recruited, and the strong investment results we have delivered to investors. In the last five years, we have evolved our model to have not just significant resources on the investment staff side but also significant resources dedicated to helping our portfolio companies. We think this is the right strategy for the next 20 years. It’s not just about making good investments; it’s also about the post acquisition value add.
I give a lot of credit to our founders, who 13 years ago instituted a leadership transition plan, which resulted in the next generation of leaders developing the strategy andthe organizational design, hiring new talent and reinvigorating our brand and our franchise. As we sit here today, we have more than 80 people in the organization, where a decade ago we had about 40.