Braham Moondi:
Hello everyone!
Welcome to the April episode of BDO’s PE Market Pulse, where we invite a leader in the private equity ecosystem to share their thoughts on current market activity. I'm your host Braham Moondi, National Leader of BDO Canada’s PE Practice and Assurance, and I have the immense pleasure of having Debra Dobson, Partner at Peloton Capital Management, join us today.
Peloton is a Canadian private equity firm that invests in the healthcare, financial, consumer, and business services sectors across North America. Debra is an accomplished senior leader with over 20 years of experience in both private equity and Fortune 200 firms, possessing extensive knowledge of the healthcare and life sciences sectors.
So welcome, Debra. It’s a pleasure to have you here.
Debra Dobson:
Thanks for having me, Braham. Happy to be here.
Braham Moondi:
You know, healthcare is such a dynamic sector with lots of activity, both on the traditional diagnostic and patient care services, as well as life sciences in general, with varying sizes of players and their evolution in both these sectors. So this will be definitely an interesting one. Let’s head straight to the question.
The first one being: healthcare in Canada has always been a hot topic, but recently there's been more visibility or perhaps opportunities with the gradual demographic changes as well as investment strategies or roll-ups, along with AI and big data coming into play. How do you see 2024, and perhaps even a broader outlook of healthcare shaping up for private equity firms and their investment pieces in the healthcare sector?
Debra Dobson:
Yeah, well, I think it was a good entry from you. I mean, the demographics and the macro factors around healthcare remain robust. This is a market that has demand and, as we all know, a cyclical demand. And that's one reason why we all like it so much. And then we all know the aging demographic story, just as you said.
When you think about healthcare as a sector, it's broad—life sciences. You roll those together and healthcare, life sciences—these are very broad sectors that are serving all of us. So it's robust. There's strong demand. The issue in Canada, and the opportunity, is that there are unmet needs in the market demand. Because of that, there’s an increasing opportunity for providers to do more efficiently and to serve the market’s needs.
So that's what gets us pretty excited—just the profile of the sector, the growth dynamics around it. The other piece here is the need for innovation. We all know the headlines, and quite frankly, Canadians too often benchmark our cost of healthcare and our delivery relative to the U.S. market. And that's one of the worst benchmarks to use since they have one of the highest costs per capita in the global market. We should be looking across the pond, knowing that this should make us all feel more inclined and motivated to go for innovation and more effective delivery and services.
In my mind, because of that, there’s a ton of market need and a ton of unmet market needs, as well as the need for innovation and productivity improvements for us to do better. That gets me excited about 2024 and going forward.
Braham Moondi:
Now that's perfect. I love that you mentioned that compared to the US because if you're right, the comparison needs to be a little bit to the east rather than to the south.
Debra Dobson:
Correct, correct.
Braham Moondi:
When it comes to innovation and life sciences, there was a play, you know, in the past—a strategy of emerging life sciences innovators in the R&D space. They would enter into collaborative agreements with Big Pharma and ultimately exited with that Big Pharma. Now that these new technologies and the mass availability of these new technologies are coming into play, are there any trends or changes that pique your interest?
Debra Dobson:
Oof, a lot. I mean, I came from a public company, as you alluded to in the intro, called Danaher Corporation—they’re Fortune 200. They are a routine acquirer and a serial acquirer in this space. And quite frankly, there’s a ton of innovation. Again, a ton of unmet need and emerging technologies. So be it single cell analysis via genomic therapies, and then go down certain therapeutic areas—there’s just a ton of opportunity, and it's a very exciting space because it's quite dynamic.
Because of that, the models have changed from, historically, big pharma waiting for technologies or ideas to develop and mature and then gobbling them up. And that’s the same thing with life sciences tool providers. The large ones now, like Danaher and Thermo, will do the same. But you also now have a very outsourced market of service providers. As we all know, big pharma has so much of their market now and many of their services outsourced.
This provides runway for innovative players to not necessarily go through that standard trajectory where they wait, size up, and then get taken out when they’re 200 million or so in size by big pharma. I think there are other avenues you could explore. Also, with unproven technologies—genomics, single-cell therapeutics, many other therapeutic plays—you could be the winning provider without necessarily being taken out of the game too early. So to me, that's pretty dynamic and an interesting space that should challenge players' thinking on their business models and how they want to engage with the larger providers going forward to maximize the outcomes for themselves, their businesses, and their stakeholders.
Braham Moondi:
That’s amazing insight.
So when it comes to traditional healthcare, let’s talk about diagnostic labs, patient care labs, and those kinds of services. What are the key issues or challenges that you come across in this industry?
Debra Dobson:
Yeah, I mean, the other piece in the introduction—I spent nine years on the hospital board, acted as their chair right when COVID was very much in force. So I exited as chair in 2020. I’ve seen healthcare in many different ways—as an investor, as a partner in private equity, as a board member, evaluating hospitals, and the need there in a publicly funded model.
What I said at the onset is that there’s a lot of unmet need. There are many requirements here for us to improve our service delivery models so we can treat Canadians faster and more efficiently. And then, of course, the labor dynamics. We’ve all heard the headlines; this is not going away. We see it in our businesses—scarce labor, from technicians to nursing through physicians and dentists.
The more we can make those providers focus on their core activities—if you're a fertility specialist, for instance, you should be doing what you’re trained for versus some of the onboarding work that other providers could handle. The same applies to surgical specialties and others. The key is to help providers focus on their core activities more efficiently. If you’re introducing new technologies or new providers and carving up work stream activities, that’s how we think about it. We aim to improve the quality of care, efficiencies, and cost of care. It’s all about serving patients better and achieving better outcomes. This is true in the public sector and hospitals as well.
They've gotta rethink. I was in a hospital that challenged their thinking around alternative level care patients—those who don't know how to exit the hospital system once they're in there. We were really challenged and created a whole network around home care and home care providers to help folks transition more efficiently and effectively back to their homes, where most people want to be. That was a healthcare system reaching out to work more effectively with service providers and address fragmentation in the market.
The distinction between acute care that's required within the hospital versus rehab care that may not be required within the hospital is crucial. The demand is always about using resources most appropriately.
Talking about Peloton specifically, Peloton focuses on North American companies with EBITDA ranging from 5 to 40 million. Outside of these traditional financial metrics, some key attributes Peloton looks for in target companies include growing businesses in dynamic sectors like healthcare and financial services. Peloton's sector focus and strategy are broad, but they hone in on subsectors with attractive profiles and attributes.
Peloton prefers buy-and-build platforms and multi-site businesses, though not exclusively. They value sectors with recurring demand and multiple dimensions of growth. For example, technology in fertility or dentistry introduces new opportunities and improvements in patient outcomes. This excites Peloton beyond just buy-and-build platforms.
Peloton often backs founder-led businesses with strong entrepreneurs who need partnering to accelerate their growth. A key aspect is having strong management teams and aligning with founders and key producers. Peloton’s partnering model often involves a share model to maintain alignment between Peloton, management teams, founders, and key producers.
Payer mix is another consideration. Peloton focuses more on areas where public funding is not present. As a private provider and investor, they aim to serve markets where coverage is lacking, helping to grow and better serve Canadians.
As a platform investor, Peloton backs businesses that show potential for consolidation through buy-and-build strategies. They seek businesses creating value through customer results, engagement, and service improvements, helping key producers focus on their practices and reducing business headaches.
Regarding ESG factors, Peloton, as a PRI signatory, integrates ESG into their decision-making and strategy for long-term returns. They assess their portfolio businesses' ESG performance and focus on improving these factors. Social factors like diversity, equity, and inclusion, employee health and safety, and worker engagement are priorities. Environmental efforts focus on waste management and reducing footprints, while governance involves improving risk management and business governance. Transparency and reporting are key for accountability in ESG processes.
Braham Moondi:
Okay, for some lightning round questions. Just a quick round here.
Best source to stay up to date on market dynamics or market intelligence?
Debra Dobson:
I don't know if I have a best source. I actually go for multiple sources. Standard business publications that everyone usually seeks, I certainly do that. And then depending on the industry sector, I'll focus on that. Quite frankly, I've always found that the most insightful sources are often those that are closest and niche—be it bloggers or whoever is covering specific industries like the fertility sector. So I'll hone in on that. Then, regulatory association bodies are another key source. I start broad and then focus on the sectors we are involved in to find the relevant chatter.
Braham Moondi:
If you have to invest in a healthcare company right now, what subsector would you choose?
Debra Dobson:
Any of the ones I'm currently in. However, if I had to pick another one, I'd choose something outside of infrastructure. Home health is interesting due to the increasing demand driven by aging demographics. The need can't be fully addressed just through infrastructure, so there's a significant market opportunity there. Another area of interest is ambulatory surgical centers (ASCs). They are not as well-developed in Ontario compared to other markets in Canada. Given the pressures on hospitals and the increasing population demands, these institutions are appealing because they offer more efficiency for certain procedures outside of traditional hospital settings.
Braham Moondi:
And first thing that comes to mind when you think of AI?
Debra Dobson:
Creepy but potentially useful. It’s about using it efficiently to improve productivity and eliminate unnecessary work.
Braham Moondi:
Finally, a recent book you read that you'd recommend?
Debra Dobson:
I'm currently reading "Covenant of Water" by Abraham Verghese. I’m about 450 pages into it, which is roughly two-thirds of the way through a 650-page book. I would definitely recommend it; it's a great read.
Braham Moondi:
So, that's a wrap for this episode. Thank you, Debra, for joining us today and providing your amazing insights regarding the healthcare and life sciences sector.
Debra Dobson:
This was great. Thanks for having me.