Roll-ups may be all the rage for PE investors in healthcare, but today’s more patient-centric ecosystem argues for addressing organic growth as well. Here’s how to use sales and marketing savvy to upgrade value creation at every step of the deal cycle, according to fractional growth executive provider Chief Outsiders.

There are few things more popular with PE investors right now than platform plays, with add-ons accounting for 75.9% of all buyout activity in 2023, according to data from PitchBook. And due to the highly fragmented nature of the US healthcare system, there’s no shortage of opportunities to scoop up enterprises around a theme, tune up the operations and sell the newly minted market leader.

However, Private Equity investors may be leaving money on the table by ignoring organic growth, driven by a thoughtful, disciplined sales and marketing effort. Given how many PE firms are selling to their peers, it’s crucial to demonstrate there’s runway for further growth to warrant the buyer’s time and money. The good news is that with some attention and discipline around sales and marketing, PE firms can upgrade these platform plays into growth engines for years to come.

Never too early

The best time for investors to consider marketing is during due diligence. “I wouldn’t start with a marketing conversation per se,” says Todd Lunsford, a fractional CMO with Chief Outsiders, with years of healthcare experience. “I’d look at the growth strategy of the investment thesis.” As an example, Lunsford cites a company whose patient services are delivered by physicians and ask if the demos back the assumptions.

“Physician productivity follows a very predictable curve. It peaks at a certain age range,” says Lunsford. “And I’ve been personally involved in one business where highly productive baby boomer doctors were starting to retire. So there’s y-physicians delivering to x-patients, and if let’s say 40% of those doctors are retiring, how is the company going to address that as part of the growth strategy? If the company doesn’t have an answer, there’s no use discussing consolidated branding or more programmatic sales.”

Some PE firms are already making marketing a priority during due diligence. Joe Grace, a fractional CMO at Chief Outsiders, with a specialty in direct-to-consumer marketing, and a career that includes a long tenure at Web MD explains how one PE client was looking at acquiring a medical weight-loss business, where meals were designed by doctors to address a range of health issues. “They liked that the business was growing dramatically, but they didn’t know much about digital marketing, and this was an e-commerce business that depended on it,” says Grace.

And so they tapped Chief Outsiders to assess the current business, which included looking at the enterprise from multiple perspectives, and interviewing marketing personnel to vet their skills and strategies. In that case, the PE firm knew it was a consumer-facing business, but the fact is that more and more of the healthcare sector is susceptible to consumer pressures.

Consumer-centric

Sarah Polk, a Partner at Chief Outsiders, with experience in healthcare that includes medical devices, life sciences, biopharma and more, cites one ailment as an example of the trend. “Sleep apnea is a problem that impacts so many people and used to be treated and studied exclusively in hospitals,” says Polk. “And now, there are ‘sleep centers’ around the country, and patients are hunting online for any number of products to address the condition.”

“The entire customer journey map has changed completely for a lot of these different treatment programs,” says Polk. “And that means PE firms have to really dig into what is influencing purchases, and how to build a customer pathway to that facility, because customers need to be “warmed up” at earlier stages than ever before, when years ago, it might be only a matter of a physician referral.” And that means the pathway should be a part of the overall growth strategy in the investment thesis, before even pulling the trigger on the investment.

But even if the PE firm buys into the importance of the market research, the internal marketing staff requires its own hands-on investigation. Grace recalls a situation at a medical device company: “The entire marketing staff had a background in trade shows, so their campaign began and ended at trade shows. Then when they were empowered to introduce this new medical device and get some traction, they did what they know to do. They put together decks and went to trade shows. It was the wrong people talking to the wrong audiences for the new device. And that meant taking a step back.”

When these issues are identified during due diligence, PE firms can make a case to lower the price of the enterprise, as these weaknesses may warrant a discount. But what happens when later in the life of an investment, when PE investors find their healthcare portco struggling to match the initial thesis? What if growth slows or stagnates? Chances are there’s opportunity to fix this by revamping the sales and marketing approach.

Diagnosing the “real” cause for sluggish growth

Lunsford suggests making sure to attack whatever direct to consumer strategies may exist for that healthcare enterprise and the referral network, which often feed into each other now. “On the referral side, it gets a little cloudy as to where marketing ends, and sales begins. Nowadays, even in a referral-heavy business, consumers are going online to check reviews, and a friend may refer them to a given provider, after they themselves kicked the tires online. So there’s a way to market with an eye on earning those referrals, with a mix of social media campaigns and outreach to the appropriate audiences.”

But Lunsford also notes that sometimes, a slowdown in referrals could be an operational issue. “In the case of a surgery center business, referrals had dwindled,” says Lunsford. “Although what we found was a communication issue between the surgery centers and the referring practices, and so we alleviated that issue and sure enough, there was a spike in referrals.” While that was a terrific example of drilling down into the operations, there’s value in stepping back and reviewing the overall strategy.

Polk was tapped to help an emergency care facility in North Carolina that was losing money shortly after it opened. “We did a whole quantitative demographic analysis of the several county market area the facility served,” says Polk. “And what we found was insufficient demand, but they didn’t know that because they never did this kind of research. And they had spent millions to build the facility.” Another argument to invest in market intel well before any kind of major investment.

That market intel can also spark product development. “I think one of the most underrated aspects of professional market research is that its findings can also identify consumer appetite and inspire the next service or product, all backed by proven consumer interest,” says Polk.

Graceful exits

And naturally, the quality of the company will dictate the quality of the exit for PE investors. And as much as roll-ups may create bigger companies, PE firms need to prove to potential buyers that they made a better company. What this means is demonstrating that this newly consolidated company still has runway to grow, and that requires building a sales and marketing effort that can show that.

Polk recalls being brought in by a PE group that had owned a professional services enterprise for five years and were eager to sell it but were wondering how to make it attractive to potential buyers. “Initially I worked to rebrand the company, harmonize seven different brands, define key targets, create new messaging, and build a new website,” says Polk. “Then we built and developed a growth engine with a new internal sales team that supported the external sales team. We were able to show metrics that demonstrated real growth and six months later they were able to flip the company for an attractive return.”

Metrics are key, especially for buyers. Grace recalls one client, a medical device company, that thought their problem was outbound marketing and was looking to bulk up their digital outreach, along with traditional venues like TV. “However, there were no clear metrics,” says Grace. “And for this particular medical device, there were eight to ten different touch points after a lead came into the various call centers.”

Grace created metrics for each touch point and realized that they could double the size of the business in three years by simply improving every touch point a little bit. “The metrics showed that the problem wasn’t the front-end marketing or a lack of leads, it was that the leads were getting lost along the way,” says Grace. And that kind of observation doesn’t just solve the growth problem, it avoids costly investments in more TV ads or inventing whole new campaigns.

Smart sales and marketing efforts can actually save money, and in the healthcare space, it doesn’t take much to upgrade marketing tactics, especially with a little inspiration. “The fact is we can deliver a campaign to reach target audiences for very little money,” says Polk. “I created a TV and radio campaign for a hospital maternity center using a college a cappella group and stock footage of babies instead of casting babies. We produced the whole TV spot and radio campaign for less than $7,500. It ramped patient numbers, won awards, and ran for two years.”

But that takes both creativity and expertise to pull off. With healthcare becoming all the more patient-centric, and the PE landscape becoming all the more ruthlessly competitive for capital and opportunities, there may be no choice but to invest real time and resources into “healing” the sales and marketing efforts at portfolio investments.