Q&A: Bain Capital’s Devin O’Reilly talks healthcare investing

Devin O’Reilly is a managing director at Bain Capital, where as a member of the North American Private Equity team he helps lead the firm’s healthcare investing efforts.

Bain has a history of using complex deal structures to drive strategic transactions. How would you characterize this approach?

At Bain Capital, what we’re looking to do with our investment approach is to create an inflection point for the company. Sometimes that can be because there’s something dynamic going on in the industry or because there’s something we’re trying to achieve at the specific company. The opportunity to buy the multiple down and simultaneously merge two companies is not all about buying the multiple down or cost synergies. You have to have a lot of strategic reason to combine.

It’s about the proposition to payers, the proposition to employers and patients, and in a lot of cases, physician partnerships. It has to work for all those parties. That is an element of how we’re trying to create an advantage. Everyone is aware of the escalating costs of healthcare. One central question we always ask ourselves: Is this part of the solution or is this part of the problem?

What’s an example of this strategy and the thematic exercise you go through?

Aveanna was a case where we had gone out and identified that home health broadly was a very interesting space in particular. The segments of home health in which Aveanna competes—including adult, pediatric and autism—we thought were growthful and would go through more consolidation. We identified and pursued parallel investments in the two companies that we thought would be a good fit together—PSA Healthcare and Epic Health Services—that eventually formed Aveanna. This allowed us to effectively compete in the relatively competitive Epic process like a strategic player would, with both the revenue and cost synergies that we had lined up ahead of time.

Waystar is another example where we identified [revenue cycle management] as an area we thought was growthful. We bought Navicure and quickly thereafter bought Zirmed. We refer to this internally as “the double play.”

How does the healthcare team’s collaboration with other Bain Capital platforms give the firm an edge in its pursuit of companies operating at the nexus of healthcare and technology or payments?  

When we look at healthcare IT, we bring a unique proposition that includes both our healthcare and technology teams. We have tech team members deep in both payments and software and understand all the industry nuances. Broadly, our PE team has done a lot in payments, particularly in Europe, and we are able to leverage that. We can also align with our venture team, which has done a lot of early stage investing in U.S. payment companies.

We think we can add value [in these situations] given these elements, coupled with our strong knowledge of the challenges healthcare providers face in dealing with claims and payments. We have deep experience through our [current and former] ownership of many providers including U.S. Renal, Aveanna, HCA and Surgery Partners, and on the payments and technology side, FleetCor, AvidXchange, Ability Network, Waystar and Worldpay, among others.

Bain this week struck a $2.7 billion deal to sell a majority stake in Waystar to EQT and CPPIB, while retaining a minority investment. Why was this the preferred outcome as opposed to a strategic sale or IPO? 

We decided to pursue a deal where we rolled a significant stake because we are very optimistic about the future of the business and the role the company plays in revenue cycle management and the broader healthcare payments ecosystem.

We see first-hand the challenges healthcare providers face with the complicated revenue cycle management process, particularly as payment mechanisms become more and more complex with the advent of value-based payments, high deductible health plans, and evolving consumer co-payments.

Elsewhere, Bain in June raised $900 million for its second dedicated life sciences fund. How are the healthcare and life sciences teams partnering to create compelling opportunities?

We try to bring the best of the firm to bear on any particular situation. A company we invested in last year, Cerevel [Therapeutics], was an interesting partnership between ourselves and our life sciences team, where we actually went to Pfizer and took on their entire CNS (central nervous system) portfolio. These are all pre-revenue assets. That was growth we’re funding. Pfizer found it attractive that we were able to understand and see the strategic value with it, but also come with a scale private equity check and commitment of $350 million.

The Big Pharma world is going through an interesting evolution. On one hand, there’s more pricing pressure on drugs in general. But payers will still reward innovation. Going forward, the broader biopharma space is an interesting area for us to explore, and with our life sciences partnership we’re now well-equipped. We’re having lots of conversations around things like Cerevel that would be very interesting to us, but are not necessarily core to a large pharma company.

What big-picture themes are lending to the most exciting opportunities in healthcare investing today?

As we think about a lot of our healthcare services businesses, the theme around greater integration of payers and providers is an interesting one. We see that with the evolution with Medicare Advantage and other forms of value-based care. Creating companies where you can have better collaboration with payers and providers is really important. For example, at Surgery Partners, we have had a lot of arrangements and conversations with different payers, where we’re taking a specific company or taking a region and creating more information flow.

Figuring out how patients can receive better care at lower costs—that’s where the essence of having the alignment of information and flow of information is critical. We’re thinking through ways in which we can implement that at many of our companies.

Another theme we are very focused on is how technology is being used in healthcare. For example, at Aveanna, we’re developing a really innovative caregiver app that is like an Uber for nurses. This allows nurses to select how and when and where they’re going to work, ultimately enabling more patients to get the care they need. That is something we haven’t really seen elsewhere. Broadly, tech and healthcare is interesting, because we’re still in the early innings.

This interview was edited for clarity.