Frazier Healthcare Partners wrapped up a 10th flagship buyout fund at its $1.4 billion hard-cap, as limited partners pour ever-larger sums into healthcare offerings.
Frazier Healthcare Growth Buyout Fund X closed this month ahead of a $1.2 billion target, making it the largest flagship pool in the Seattle private equity firm’s 30-year history. It is nearly twice the size of Fund IX, which secured $780 million in 2018.
Frazier completed marketing at a fairly rapid clip, managing partner Ben Magnano told Buyouts. Launched late last year, fundraising was most intense in 2021’s first 90 days, he said, as existing LPs writing bigger checks were paired with several first timers.
In all, some 35 to 40 institutions committed capital to Fund X, Magnano said. Frazier in the process diversified its traditionally North American LP base with “marquee international investors” hailing from Europe, the Middle East and Asia.
Frazier’s experience is illustrative of 2021’s robust market for healthcare funds. In the first quarter alone, 61 vehicles collected $60 billion-plus globally, almost half of the $124 billion raised in 2020 as a whole, according to Buyouts‘ data. This suggests activity may be poised to surpass last year’s haul and even 2019’s record $192 billion.
This is not surprising to Magnano, who pointed to the strong secular growth behind healthcare. “It is one of the largest industries in the US and internationally, it is very complex, and it stands to expand even further due to an aging population.”
Other tailwinds include the healthcare focus of federal policymakers, which could result in “more people covered and more services delivered,” Magnano said. The sector is also benefiting from covid-19’s digital acceleration, which spurred trends like virtual healthcare.
Staying the course
Fund X will maintain Frazier’s core flagship strategy of acquiring control stakes in lower mid-market healthcare companies, Magnano said. The firm invests $30 million to $350 million in buyout, carveout and recap deals that back high-growth businesses with EBITDA of $5 million to $50 million.
A key aspect of the strategy is Frazier’s reliance on healthcare operators for advice and insights that help it “come up with long-term investment theses,” Magnano said. An on-going executive-in-residence program is one of the ways this is achieved.
Frazier’s theses at present emphasize five major verticals: tech-enabled pharmaceutical services, hospital outsourcing, specialty distribution, outsourced tech-enabled services to the managed care industry and healthcare innovation.
Fund X has already made an inaugural platform investment. In January, it acquired a 50 percent stake in CSafe Global, a cold-chain shipping solutions provider to pharma and life sciences clients. The seller was Thomas H. Lee Partners.
A second deal is likely to be finalized in the weeks ahead, Magnano said. Fund X, which is targeting 10 to 12 investments, will use its bigger pool to tackle hefty transaction sizes and pursue carveouts, where Frazier sees “more opportunities.”
Healthcare carveouts have been part of Frazier’s strategy for about a decade. A prominent example is PCI Pharma Services, an outsourced pharma services provider sold in December to Kohlberg & Company for more than $3 billion, PE Hub reported.
PCI was “a small orphan carveout,” Magnano said, when Frazier bought it in 2012 from Catalent Pharma Solutions. A majority stake was sold in 2016 to Partners Group, with Frazier fully exiting upon Kohlberg’s acquisition. Over this eight-year span, PCI’s EBITDA grew to nearly $200 million, from less than $10 million.
Frazier, which also has a life sciences strategy and team, was founded in 1991 by Alan Frazier, a former healthcare operator. It is today led by Magnano, managing partner Nader Naini and general partners Nathan Every and Brian Morfitt. Frazier, the firm’s chairman, is a senior advisor to Fund X.