In order to capitalize on the $10 billion pharmaceuticals marketing industry, a market that is growing by as much as 20% a year, H.I.G. Capital LLC has launched HealthSTAR Communications Inc.
As a conglomeration of four initial acquisitions with revenue of $120 million, H.I.G. says HealthSTAR is the sixth largest pharmaceuticals marketing company in the U.S. (H.I.G. is not releasing the names of the companies it acquired.)
Miami-based H.I.G., along with LPs CapitalSource Finance LLC, based in Washington, D.C., and Windjammer Capital Investors LLC, of Boston, have committed $200 million to the deal.
The investment represents H.I.G.’s foray into the health-care market, though managing director John Black says it has direct marketing and other marketing companies in its portfolio, including New York-based Happy Kids, which designs and markets licensed, branded, and private label children’s apparel to mass-market retailers, mid-tier distributors, specialty retailers and department stores.
With regard to pharmaceuticals marketing, Black listed several reasons why now is the right time to invest in the industry.
“The demographics are favorable,” he said. “The population is aging and the [baby] boomers are spending more money on pharmaceuticals.”
There is a trend among pharmaceutical companies to outsource their marketing needs.
“There are at least 15 brackets – public relations, advertising, the Internet [among them] – that they are outsourcing because they’re overwhelmed,” he said.
This is due to the many ongoing changes occurring in the health-care industry. “Pharmaceutical companies are trying to reach the consumer today. Consumers have greater influence in what is prescribed to them than ever before,” he added.
On top of this, because of HMOs (and doctors’ subsequent lack of time), plus pricing pressures, pharmaceutical salespeople “have to be more creative and efficient in reaching the doctors who give them two minutes rather than 10 [today]. There’s a saying: usage follows knowledge,” Black said.
And then there’s the tremendous growth of the industry itself. “The top five largest health-care advertising agencies have experienced annual growth of more than 30%,” Black says.
H.I.G. expects HealthSTAR to achieve revenue “in excess of” $500 million over the next three to five years, through both add-on acquisitions and internal growth. HealthSTAR chairman and CEO Jerry Brager, whom Black described as the “visionary” behind HealthSTAR, has worked in the pharmaceuticals marketing services industry since 1970, and has formed three companies, one of which he took public via Lehman Brothers in 1991. Brager began to formulate HealthSTAR three years ago and partnered with H.I.G. last year in order to fund the launch. John Corcoran will act as president and chief operating officer. Corcoran has roughly 35 years of experience in the health-care advertising industry.
Black also noted that HealthSTAR is the first national network of regionally based health-care marketing companies in the U.S. This means the company “can implement down, [in other words] not just on a national but on a regional basis, a local basis, to reach physicians and patients locally.”
With regard to an exit strategy, Black said it’s too soon to say. But he mentioned that an IPO is viable, not least in part because Fred Frank, vice chair at Lehman Brothers and “the top dog in the pharmaceuticals/heath-care investment banking world,” sits on the board at H.I.G.