RoundTable Grabs $400M Holy Grail

There were no first-time jitters for RoundTable Healthcare Partners. The Lake Forest, Ill., private equity firm just closed its debut fund in impressive fashion at an oversubscribed $400 million, or $150 million over target. It also acquired, for an undisclosed amount, its first company, Vanguard Medical Concepts Inc., a major medical device reprocessor.

RoundTable, which seeks to partner with established health-care companies and successful management teams, is led by four partners who have more than 100 years of combined experience in managing, operating, acquiring and financing multibillion-dollar diversified health-care concerns.

“Health care is pretty counter-cyclical [and LPs] were looking to put money out of technology and into health care,” says Lester Knight, one of the four founding partners.

“We have a different approach in that we’re very operationally focused. Three out of the four founding partners are health-care executives. And our concept is to do deals in areas that we’ve run companies in the past,” he adds.

Knight is the former chairman and CEO of Allegiance Corp., the largest U.S. distributor in health care. Cardinal Health, a wholesale drug distributor, owns Allegiance. Roundtable Founding Partner Joe Damico was group vice president at Cardinal Health. Jack McGinley, formerly executive vice president of Baxter, a critical therapies company, and Todd Warnock, formerly head of health-care M&A at First Boston, round out the firm’s partner roster.

RoundTable plans to invest between $30 million and $60 million of equity into eight to 10 platform companies, with an emphasis on North American firms specializing in medical devices and disposable products used by hospitals, physicians and nursing homes; plus pharmaceutical products and services.

Knight says RoundTable aims to be actively involved in companies in the $20 million- to $200 million-range. “We’re looking for good companies with good cash flow, and to bring our operating talent to help them grow even faster or become much bigger companies,” he notes.

RoundTable rounded up 25 LPs for its first fund. They were comprised of endowments, banks and pension funds. Among them: the University of Chicago; Northwestern University; the University of North Carolina; and the University of Wisconsin. JPMorgan Chase, Credit Suisse First Boston, Bank One, GE Capital, National City Bank of Cleveland, and Wachovia also signed on. Three insurance companies, Mass Mutual Life, Exxel Capital and Aon, also invested. The pension funds included 3M and the Episcopal Church Pension Fund of New York. The average investment size was $10 million.

“But the largest investor in the fund was ourselves,” Knight says. “We’re putting in $22 million. That’s another thing people liked, that we’re investing our own money.”

He adds that as much as half of the money, $200 million, came from individuals. RoundTable did not use a placement agent.

The firm is targeting 25% net returns, and is confident that its first transaction, Vanguard Medical Concepts, will hit that target.

The Vanguard acquisition comes at a pivotal time for hospitals across the country. New FDA guidance for the $2 billion medical device reprocessing market requires hospitals to follow the same rigorous pre-market submission conditions as original device manufacturers. Many hospitals are finding they lack the resources to meet those requirements.

Knight estimates that only $45 million to $50 million of the $2 billion market has been funneled into outsourcing. “It’s a huge market opportunity and, again, something we know a lot about,” he says.

To that end, Vanguard has signed exclusive deals with Allegiance Healthcare Corp. and Owens & Minor Inc., the two largest distributors of medical and surgical supplies in the United States. Allegiance is working with Vanguard on ways to offer its medical device reprocessing services to Allegiance’s U.S. customers under its “best value products” program. Owens & Minor offers Vanguard’s services to its customers nationwide as a preferred provider of medical device reprocessing services.

Knight explains the situation this way: “The hospital will use the products, send them to Vanguard, Vanguard will clean and sterilize them, and Allegiance and Owens & Minor will actually sell them back into the hospital. We think that [process] will really accelerate the growth of this [company].”

RoundTable took a controlling interest in Vanguard, and named Damico as chairman. The firm also brought in a new vice president of sales and marketing, who has hired about 20 new sales people, and an executive vice president of operations, who will take over the quality and manufacturing functions.

“We brought him in to aid the firm’s expansion plans,” Knight says. “We will open one or two more plants around the country as this gets bigger.”

RoundTable expects to close its second pharmaceuticals acquisition, worth $100 million, at the end of the month, Knight adds.

H.M. Werner can be contacted at: