Shore expands healthcare platforms after big exits

  • GP doesn’t see huge change from election
  • New Medicare rules will drive consolidation
  • Firm made 5x average returns on all exits since 2009, sources said

Shore Capital Partners, the Chicago healthcare specialist, is shaping its deal-making around consolidation, physician shortages and consumer-friendly retail operations for treating patients after ringing up big multiples on recent exits, according to two sources.

Focusing on companies with $1 million to $5 million of EBITDA and then growing them, the firm generated a roughly 4x return on the sale of ClearPath Diagnostics to Laboratory Corp of America in October, sources said.

The firm made about 7.3x on the sale of Fast Pace Urgent Care to Revelstoke Capital Partners in August, sources said.

The firm’s average cash-on-cash return on recent exits comes in at about 5x, with no deals in its portfolio generating less than 3x since the firm was founded in 2009, sources said.

After setting up special-purpose funds for each individual investment, Shore Capital raised its first commingled fund, Shore Capital Partners Fund I, in 2014 with $112.5 million in commitments. The firm plans to raise Fund II next year but has not shared a target, sources said.

The firm discussed the returns and fundraising plans at its annual meeting on Oct. 19, sources said.

Justin Ishbia, managing partner at Shore Capital, declined to comment on the firm’s investment returns and fundraising. The healthcare-deal environment will be influenced more by new regulations kicking in next year than by the presidential election, he said.

“Given the consensus that the presidential race may go toward Hillary Clinton, that means a lot of Obama administration policies will remain in place,” Ishbia said in a phone interview. “It creates certainty. But overall, it won’t have that big of an impact.”

Rather, the firm sees more changes coming from new rules taking effect next year to carry out the Medicare Access and Chip Reauthorization Act of 2015, also called MACRA. The 2,400-page rule is expected to spark deal-making in the healthcare arena in an effort to cut costs.

The MACRA rules may speed up physician consolidation under its structure that would pay doctors with better data systems more generously.

“Those who collect data will get higher payments amid a push toward payments based on quality of care rather than fee for service,” Ishbia said.

To capitalize on this trend, Shore Capital is under a letter of intent to buy a chain of ophthalmology practices and another business that operates dermatology clinics. He declined to identify the businesses by name because the deals haven’t been finalized.

“Both types of business are in the crosshairs of the deal landscape,” he said. “They’re both highly skilled businesses with the right data systems. In two years, they’ll get paid more for providing higher quality services.”

Along with its exited investment in Fast Pace Urgent Care, the soon-to-be-purchased businesses also address a market need for more medical care caused by a shortage of doctors. The practices hire nurse practitioners and physicians’ assistants to provide additional care.

Along with physician shortages and consolidation, Ishbia flagged the success of retail-based models such as freestanding urgent-care centers that have popped up nationwide.

“People used to go to a doctor during limited hours during the workweek, but now there’s been a shift toward more consumer-friendly models,” he said. “People want to go to the doctor after work. Healthcare businesses and private urgent-care facilities are open from 8 a.m. and often well into the evening. It’s a huge trend. You’ll see more consumer-facing businesses. Doctors are starting to take market share by working with consumer demands.”

To meet this opportunity, Shore Capital’s dental platform, Chicagoland Smile Group, has expanded its hours to between 7 a.m. and 8 p.m. It’s done the same with other platform companies. 

The firm also remains focused on the emerging business of concierge medicine through its investment in Specialdocs in late 2015. The business allows patients to pay a flat monthly fee in exchange for better access to doctors and personalized service.

The firm is confident enough in opportunities in the space to continue setting acquisition plans despite tight competition for targets.

“The market is relatively robust,” he said. “But we’re not holding off on deals.”

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