Independent Sponsors in Healthcare with Archimedes Health Investors’ Harry Eichelberger

Deal by Deal: A Private Equity Podcast

You could do very well in large-cap, private equity by consistently generating solid returns at scale and volume. It’s great for large institutions and PEs that have the time and resources to compete at slews of auctions and zoom through portfolio after portfolio to close deals, quarter after quarter.

After years in this kind of environment, Harry Eichelberger of Archimedes Health Investors found independent sponsorship in physician provider services to be more exciting, more personalized, and more entrepreneurial. On this episode of the podcast, he discusses his approach to healthcare investment and how he came to focus on physician services.

Also on this episode of Deal-by-Deal, hear from McGuireWoods Partner Holly Buckley on digital healthcare and healthcare IT.

“We will continue to see an increase in traction on deals in healthcare IT, and there’s going to be a real race to consume the valuable assets in that sector,” Holly says.

The demand has never been greater for fully invested, sustainable healthcare. COVID just brought it all to the forefront. Yet considering the events of the past year and a half, the healthcare niche is even more relevant than ever for the independent sponsor.

Meet Your Hosts

Name: Rebecca Brophy

Title: Partner at McGuireWoods

Specialty: Rebecca focuses her practice on advising private equity funds, other institutional investors, and strategic acquirers in connection with mergers and acquisitions and other complex business transactions.

Connect: LinkedIn

Name: Holly Buckley

Title: Partner at McGuireWoods

Specialty: Holly focuses her practice on corporate healthcare transactional work and regulatory matters. She primarily counsels private equity funds and healthcare clients and is Chair of the firm’s Healthcare Department.

Connect: LinkedIn

Meet Your Guest

Name: Harry Eichelberger

Title: Founder and Managing Partner of Archimedes Health Investors

Specialty: Harry was a healthcare private equity, growth capital, and venture capital investor before founding Archimedes Health Investors, a private equity firm, focused on healthcare, in 2015.

Connect: LinkedIn

Acquired Knowledge

Top takeaways from this episode

★ For a successful physician practice management venture, focus on alignment. The healthcare space went through two major rollups, one in the 1990s and one in the early 2000s. During those years, the relationship between management and physicians was strictly transactional, and during these downturns, their bonds quickly ruptured. When management treats physicians like true partners, they share incentives, are invested in each other’s progress and are positioned for long-term growth.

★ Bet on Healthcare IT. COVID brought the forward movement of healthcare IT and digital healthcare, but this sub-sector of healthcare has been gaining traction for some time due to demographic shifts. These include: aging Baby Boomers, a declining workforce, the ever-present need to do more with less, and increased demand for telemedicine and other remote solutions. In short, the opportunity for digital health innovation is only expected to grow.

Episode Insights

[00:47] Independent sponsorship in healthcare: McGuireWoods Partners Rebecca Brophy and Holly Buckley discuss the transition from PE to independent sponsorship within the healthcare space with Harry Eichelberger, Managing Partner at Archimedes Health Investors.

[02:54]: Bigger, faster funding: Funds in mature PE are raising more money and dispersing it more quickly.

[4:01]: The sweet spot: To Harry, lower-middle and growth equity are the most exciting healthcare areas because there is a need for the capital, expertise, and strategy an independent sponsor can offer.

[6:27] Dig into business models and alignment: Archimedes is deliberate about which health care spots it chooses to fund. The mid-2000s taught Harry and his colleagues valuable lessons about paying attention to long-term alignment with business models: how do companies bring value to their customers and how are they paid for? Radiation oncology was operating in a reimbursement environment positioned to fail when cuts were instituted, for example.

[8:59] History repeating: In the 1990s, physician practice management (PPM) models often failed because the physicians and the management companies were not aligned. The PPM provided little oversight or systems to help physicians operate their practices to adapt to market fluctuations. It was focused on quick money and IPOs, so it wasn’t built to last.

[11:14] A different approach: Archimedes partners with physicians by tying their compensation to productivity instead of paying them a fixed salary. They create sharing mechanisms so that doctors can have access to IT, investments, systems, and management services. They also create alignment through equity ownership of the parent company.

[13:28] The individual advantage: Many big, institutional sponsors are prohibited from looking at smaller deals. Not so for the individual sponsor, and starting small is an opportunity to grow a business the way you want to, not according to a pre-existing set of constraints and policies.

[15:27] Start small: Find deals. Conduct due diligence. Raise capital. This is the basic playbook for starting out as an individual sponsor. It’s extremely challenging, so keeping your ambitions modest in the beginning makes the most sense.

[17:41] Present as an entrepreneur, and use your relationships: Harry found CEOs took him more seriously when he emphasized that working with them was his own venture, rather than part of a cushy job with a PE firm. He was also fortunate to have many strong contacts from his days in the PE world that he could leverage.

[18:46] Lean is nimble: Without the usual hours-long, extended meetings and flurry of memos that PE brings to mind, the individual sponsor can get more done in less time.

[20:54] Proof in crisis: During the most devastating moments of the pandemic, some healthcare companies showed up. Others didn’t. This underscored the importance of company culture. Archimedes was in the middle of due diligence when COVID-19 hit, and Harry says this turned out to be a great opportunity to see how the company they were evaluating responded to stress.

[24:27] 2021 outlook: Harry and Rebecca are both seeing delas being pulled forward. They discuss the deal outlook for the rest of the year and beyond and underscore why having the right partner is critical.

[28:28] Next big investment areas: Harry and Holly talk about what specific areas of healthcare they are bullish on. Harry likes physician services, while Holly is focused on opportunities around healthcare IT and digital health.

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