Vestar’s Nikhil Bhat: Information services are ‘in the middle innings of a shift’
Vestar’s Nikhil Bhat: Information services are ‘in the middle innings of a shift’
PE Hub
By Mary Kathleen Flynn
Published May 25, 2022
"Vestar seeks companies that 'use technology to aggregate, integrate, and analyze mission-critical data sources to drive high-impact insights for their customers."
Vestar Capital was early to recognize the value of companies that leverage data in sectors including healthcare. The New York private equity firm is still investing heavily in data-driven companies. In April, Hellman & Friedman agreed to acquire a majority stake in IRI and merge it with H&F portfolio company NPD. Vestar and New Mountain Capital will retain significant investments in the combined company. The deal is expected to close in the second half of the year. For insights on how the use of data has changed over the years and how PE is investing in data targets today, PE Hub reached out to Nikhil Bhat, Vestar partner and co-head, business and technology services.
How has the role of data evolved in businesses, and what are private equity firms investing in today?
Data has always been a key input in helping companies make critical business decisions. Over the last 10-15 years, the quantity of available data – about customers, products, markets, supply chains and internal operations – has grown exponentially, while the difficulty of acquiring this data and the cost of computing power to analyze it have shrunk dramatically. Companies who can make sense of this data are able to make better business decisions to drive growth and profitability; but given the sheer volume and complexity of the information, this is not easy.
We are looking to invest in vertical information services companies that use technology to aggregate, integrate and analyze mission-critical data sources to drive high-impact insights for their customers.
What is driving dealmaking in the sector?
We are in the middle innings of a shift in what drives value and differentiation for information services businesses. Previously, it might have been enough to provide a proprietary data source, and deliver a raw data product to customers in a database or spreadsheet. Today, value is driven by providing customers with self-service tools to quickly extract actionable insights from the data, and seamlessly integrating these tools into client workflows to support augmented decision-making. The most advanced companies, agnostic of size or industry, are using artificial intelligence and machine learning to further enhance speed and quality of analytics.
Every company is at a different stage of this transition. We get most excited by opportunities to help management teams invest behind technology and innovation to accelerate their evolution along this curve. Industry consolidation is another major opportunity; acquiring adjacent data sources or analytics technologies and combining them into a single solution that integrates into multiple client workflows can drive significant value for the customer, which in turn drives growth and value creation in the investment itself.
What are some of the data analytics companies Vestar has invested in recently and why?
Previous Vestar investments in the data analytics space include Press Ganey, Institutional Shareholder Services, MediMedia and StayWell. Current investments in the space include IRI, a provider of big data and predictive analytics to the CPG industry; Quest Analytics, a healthcare provider network management software and data company; LERETA, a data- and tech-enabled services provider to the mortgage industry; and Mercury Healthcare, which provides predictive analytics around healthcare provider and consumer engagement.
In each of these investments, we’ve been excited to partner with best-in-class management teams to invest behind innovation and technology, bolstered by strategic M&A, to fuel growth by creating value for the customer. For example, when we carved ISS out of MSCI, management had a vision to stand up a best-in-class technology architecture and use this to accelerate innovation. This technology investment, in addition to five strategic acquisitions, helped management transform the growth profile of the business in a relatively short timeframe.
Quest Analytics is another great example, where we’ve invested heavily in talent, product, and technology, and made two important acquisitions. As a result of these efforts, the company has nearly quadrupled in size since we made our original investment in 2017.
Tell us about exits. What are the opportunities?
There is an active buyer universe for best-in-class data analytics companies. We spoke earlier about industry consolidation – there are a number of larger, vertically-focused information services companies that have active M&A efforts and can be great homes for our investments. Larger-cap private equity can also be great partners for our investments and management teams, since many of the value drivers we’ve been discussing today are still highly relevant at larger scale. The public markets have historically been an attractive option as well, ascribing significant value to data analytics companies’ recurring revenue, robust growth profiles and attractive economic models.
Let’s talk about IRI. Walk us through how you grew the firm, how the merger with Hellman & Friedman’s NPD came about, and why you held onto a minority stake in the combined company?
We’re very proud of what IRI’s management team has accomplished over the course of our partnership. When we made our investment, we were impressed with IRI’s Liquid Data technology platform, which provides cutting-edge predictive analytics, visualization and decision support tools that help customers make sense of the vast and growing ocean of first- and third-party consumer data. Since then, the company has invested heavily behind innovation – with Liquid Data as its backbone – to create and grow new products that enable mission-critical decision-making across almost every aspect of our customers’ businesses. In addition, IRI has made three strategic acquisitions over the last three years to accelerate its product development roadmap in high-growth areas. These investments, paired with great execution and continued share gain in the core, have led to significant growth and value creation at IRI.
We’re incredibly excited about the merger of IRI and NPD, which will create the premier global information services provider to the consumer goods industry. Bringing together the companies’ complementary data sources – IRI’s CPG data and NPD’s general merchandise and foodservice data – on a single, leading-edge technology platform will allow the combined company to create new, superior products that help brands and retailers collaborate, better serve their customers, and navigate an increasingly complex and dynamic consumer behavior landscape.
It’s probably clear why we wanted to maintain a significant minority stake in the company. The potential for innovation, and resulting enhancement to the customer value proposition, should be a catalyst for growth, and we have tremendous confidence that the combined company’s management team will bring IRI and NPD together in a way that creates meaningful value for clients, employees and investors alike.
How are macroeconomic forces, including inflation, rising interest rates, supply chain problems and labor shortages, affecting deals in the sector?
On balance, these forces are a net positive for data analytics businesses. Factors like input cost inflation, wage increases, shifting customer behavior, and supply chain frictions are complex and opaque; good information services companies bring transparency to these issues, and help customers both mitigate risks and identify opportunities stemming from these market dislocations. As a result, our data analytics investments are becoming more important partners to their customers than ever before.
What’s the future for PE-backed deals in data analytics?
The industry dynamics we’ve been discussing today are long-term, secular growth drivers that are likely to support significant continued private equity activity in the information services space. The amount of data available to companies around their operations, customers and markets will continue to grow; the analytics technologies will continue to become more powerful; and as a result, the need for data analytics businesses’ solutions should continue to accelerate. We’re certainly excited to continue investing in the space, and see a lot of opportunity going forward.
Friday Health Plans Raises $120 Million In New Funding
DENVER , May 25, 2022 /PRNewswire/ -- Friday Health Plans Management Services Company, Inc., ("Friday") a Denver-based health insurance holding company, announced today that it has signed an agreement for $70 million of equity investment led by Leadenhall Capital Partners ("Leadenhall"). Vestar Capital Partners, Peloton Capital Partners and other partners also contributed to this latest investment. Leadenhall will also provide $50 million in debt financing.
Following 400% membership growth year over year for the last two years, Friday will leverage the funds primarily to support expansion into new Affordable Care Act marketplaces.
"More people are finding value in our simple, practical health plans designed for people who don't get insurance through their employer," said CEO of Friday Health Plans, Sal Gentile. "We are built specifically to give them great health benefits and superior service -- all at an affordable price. And we're able to do this because we focus solely on serving this growing consumer segment."
Friday currently serves more than 330,000 members across seven states with an estimated $1.95 billion in gross premium revenue for 2022. Most of Friday's health plans include unlimited $0 primary care visits, $0 mental health counseling, free generic drugs and free telehealth visits. Consumers can purchase the plans on the national or state-based health exchanges, through brokers, or directly on Friday's website.
"Having worked with the management team at Friday for a number of years, we have observed their expertise in bringing affordable health protection to a growing number of people. We are excited about supporting the future growth prospects of the company through this capital round," said Tom Spreutels, Managing Partner at Leadenhall.
Friday Health Plans was started in 2015 by Sal Gentile and David Pinkert, two health technology industry veterans. After the passage of the Affordable Care Act, the pair wanted to start a simpler, friendlier health insurance company, better designed for consumers not receiving health insurance from their employer.
With headquarters in Denver, Colorado, Friday has grown exponentially in the Affordable Care Act space through acquisition and organic growth. The company has expanded its employee base to more than 600 people across the country, with operations centers in Alamosa and Pueblo, Colorado.
About Friday Health Plans: Friday Health Plans is purpose-built specifically for people and who buy their own health insurance. The company focuses on overall simplicity to offer affordable health plans with benefits that help members stay healthy and cover them if they get sick or hurt. Operational efficiency, top-notch customer service, and smart technology are core to Friday's consumer-centric approach. All insurance plans and services are offered and administered through licensed subsidiaries of Friday Health Plans, Inc. For more information and to find a health plan, visit www.fridayhealthplans.com.
About Leadenhall Capital Partners:
Leadenhall Capital Partners is a UK-based institutional investment manager focused on making investments in insurance related opportunities, with ca. USD 6bn of assets under management. Established in November 2008, Leadenhall Capital Partners has made over 150 investments in life and health insurance related risks and has supported companies at various stages of their growth cycle. Leadenhall has the expertise to identify promising investment opportunities whilst also backing companies which may provide access to attractive life and health risks for its investment portfolios. Investments are made across the capital structure. For additional information on Leadenhall please visit www.leadenhallcp.com
LERETA Expands Board of Directors with Seasoned Technology and Mortgage Veterans
POMONA, Calif., April 13, 2022 /PRNewswire/ -- LERETA, a leading national provider of real estate tax and flood services for mortgage servicers, today announced the addition of three new directors to its board as the company continues to emphasize and expand its technology focus. Joining the LERETA Board of Directors are technology and mortgage veterans Stephen Gold, Gene Mergelmeyer and Tony Ebers.
Gold is an experienced technology executive and board director, having held senior leadership roles in companies across a variety of industries including retail, healthcare, digital business and communications technology. His expertise includes the design, implementation, operations management and support of large-scale, technology-driven initiatives. In addition to serving in senior roles at Avaya, Inc., Medco Health Solutions and GSI Commerce, Gold was most recently Executive Vice President, CTO and Chief Process Improvement Officer at Hudson's Bay Company and was previously Executive Vice President and Chief Information Officer at CVS Health.
"LERETA has consistently demonstrated an ability to exceed customer expectations, not just with great service, but with their groundbreaking approach to improve on an industry that was, before now, content with the status quo," said Gold. "They are changing the game, and I'm honored to serve as a director."
Before his recent retirement, Mergelmeyer spent more than three decades at Assurant, Inc., a Fortune 300 company specializing in risk management and specialty insurance in 21 countries. His most recent position was Executive Vice President and Chief Operating Officer. He spent his career successfully developing and growing numerous businesses to industry leading positions for Assurant and led the company's "Digital First" and other transformation initiatives. Mergelmeyer also created Assurant's enterprise operating model structure that focused on enhancing the company's brand across the globe through its commitment to product leadership, global solutions, enhanced agility and values of common sense and common decency.
"In an industry that has mostly done things the same way for decades with little innovation, LERETA is changing the paradigm to develop tech-informed solutions that improve service and accuracy," said Mergelmeyer. "They are raising the bar and putting a strategic focus on performance results which is producing SLAs that are the best in the industry. I'm delighted to join the very talented team at LERETA."
Ebers, the former Chief Operating Officer of Nationstar Mortgage Holdings Inc., the parent company of Mr. Cooper, brings decades of experience in mortgage lending, servicing and real estate transaction related services. His previous positions include Executive Vice President of Originations at Nationstar and, earlier, President of ServiceLink's Originations Division when ServiceLink was a Black Knight company. Ebers has also held senior leadership positions in retail banking, consumer lending, mortgage originations and servicing at OneWest Bank and IndyMac Bank, all of which will enhance his contributions as a director for LERETA.
"I had the privilege of working with LERETA in my previous roles, and as a result, I know firsthand how the company has advanced tax and flood servicing from a technology perspective, not to mention its commitment to service" said Ebers. "I look forward to being part of their continued growth."
Commenting on the new board members, LERETA CEO John Walsh said: "The addition of Stephen, Gene and Tony to the LERETA team – and the deep-bench experience they bring – is further evidence of our continued commitment to focus on technology and innovation in our company. Our mission is to elevate the quality of tax and flood services in the mortgage industry, which for too long has been subpar. Expanding our Board of Directors with these seasoned industry veterans will help us continue to exceed client expectations and deliver a best-of-class customer experience to both servicers and their homeowners."
About LERETA
Since 1986, LERETA has provided the mortgage and insurance industries the fastest, most accurate and complete access to property tax data and flood hazard status information across the U.S. LERETA is committed to giving customers extraordinary service and cost-effective property tax and flood solutions. LERETA's services are designed to increase efficiency, reduce penalties and liabilities and improve processes for mortgage originators and servicers. LERETA's dedicated teams of real estate tax and flood professionals along with LERETA's experienced management team allow the company to lead the industry in service and technology.
SOURCE LERETA
Private Equity Managers Expect Another Boom Year in 2022
S&P Global Market Intelligence, 13 January 2022 - Private equity deal-making and fundraising is expected to continue apace in 2022, although midmarket managers in both the U.S. and Europe are mindful of high valuations and inflationary pressures as they deploy record amounts of cash.
In total, 24,722 deals were announced in 2021 worth a disclosed aggregate $1.2 trillion, up from 17,618 deals worth just under half that amount the year before, according to S&P Global Market Intelligence data.
A record $1.32 trillion in dry powder sat in the asset class's coffers as of September 2021, according to Preqin's Alternatives in 2022 report. Fundraising is expected to remain strong, and limited partners are likely to maintain their focus on re-ups as established managers quickly return to market with larger vehicles, managers said.
Given the combination of available dry powder, the number of funds in market and the huge amount of interest in the asset class and its performance, it will be "a really strong year" for investments and exits, Pete Wilson, head of U.K. midmarket at pan-European manager IK Partners, said.
"Most private equity firms invest through the cycle — so while deploying, they are also exiting. And there's very little, in my view, that I can see that is going to change fundamentally this year to what we've seen over the last 12 months."
Deal-making comes with a price tag
While bullish on the deal-making outlook, managers are wary that the market is not free from risk. For both general partners and their investors, high valuations will be top of mind in 2022.
"What’s pushing valuations up? It's more demand. So, there's more volume pushing valuations up," Jason Barg, partner at U.S.-headquartered finance-focused buyout house Lovell Minnick Partners LLC, said. "I don’t foresee that there's going to be a lot of bargain shopping in 2022."
Clear business growth and value creation plans, sector expertise and sourcing bilateral deals are key in this environment, managers said.
If private equity firms have not got a value creation "playbook" at this point in time, it is going to feel quite hard to provide compelling answers to investors who are mindful of high valuations, Richard Swann, partner and member of U.K.-headquartered Inflexion Pvt. Equity Partners LLP's executive and investment committees, said.
Still, some managers expect growing valuations to moderate as central banks throttle back their pandemic stimulus measures. Norm Alpert, founding partner and co-president of U.S. midmarket investor Vestar Capital Partners LLC, said government stimulus "has been a mighty powerful source of driving valuations up, because there's just more liquidity globally searching for returns."
Now the U.S. Federal Reserve has signaled its intention to taper the bond purchases that infused cash into the economy during the pandemic and to tighten monetary policy by raising interest rates. "If global liquidity starts to stabilize and maybe even pull back, those are de-stimulative policies," Alpert added.
The costs of doing business
Macro factors including rising inflation, supply chain issues and talent are also being assessed. Managers are testing their assumptions, mitigating risks before buying into companies and evaluating existing business plans.
Following years of low interest rates, inflationary pressure is something "everybody is keeping their eye on," Lovell Minnick's Barg said.
Wage inflation, a knock-on effect of supply chain issues post-pandemic, has been the biggest surprise, Inflexion's Swann said. "We probably didn't collectively think there'd be a problem with haulage in the U.K. market or what the effects of working from home had on talent pools outside of London."
Many of Inflexion's portfolio companies are "not really constrained by the market," Swann said; rather, "they're constrained by the capacity of people and people driving technology. If you can't get the people, you can't grow."
Competition for talent is a cross-sector issue, IK's Wilson said. Losing a key team member can set business plans back considerably. "The cost is clear and easy and you can wrap your arms around that. But the time to re-recruit or find a new team — this is months or potentially a year that you lose, which is significant."
Tech-focused U.K. growth investor FPE Capital LLP has found rising demand for software services coupled with poaching in the industry has created a "tightness in the tech labor market," Managing Partner David Barbour said. Retaining and recruiting talent is something both it and all its companies "work very hard at," he added. "It's going to just become a bigger issue."
Morale is also a concern, Vestar's Alpert said, with workers just plain worn out.
"The impact on people's behavioral health and ability to maintain the pace is something that has been rearing its head and is only going to continue," Alpert said. Demographic trends around the number of people entering the workforce plus retirements are probably going to exacerbate it, and some companies will respond by shifting to more automation, he predicted.
Cautious optimism
Most managers Market Intelligence spoke with believe the momentum behind the asset class will continue to drive high levels of M&A activity.
Beyond significant volatility in interest rates, IK's Wilson said there were no obvious signs in the near term of a slowdown in activity because the supply/demand drivers will "continue to dictate that activity." Although inflation and labor pressures are "nontrivial challenges … they're not enough on their own to have such a big impact."
"There is a lot of momentum, and you've got a big population of private equity-owned deals. You've got a willingness of sellers to sell to private equity, you've got the capital there, you've got increased allocation," Mads Ryum Larsen, a managing partner and head of investor relations at IK Partners, said. There will be "hiccups" in valuations, and the stock market may see falling multiples, "but I think it's going to be shorter-term volatility rather than sort of a big trend change right now. I don't see that coming at least in near to midterm," Larsen said.
Vestar's Alpert is more cautious in his outlook. Years of "extraordinarily low" interest rates for an "extraordinarily long time" have spurred on a generally stable and consistently growing economic environment, which "tends to instill a lot of confidence in people's ability to forecast the future," he said.
"It's been this very sort of benign, self-supporting virtuous circle between exits, fundraising, more purchases, more exits, more fundraising, more purchases," he added. Alpert said he would not be surprised if 2022 is "more of the same" of what was seen last year, or if it is a more challenging year.
"Did going through the pandemic set up another long-term upcycle? Or are we going to be in for a challenging period sort of just dealing with the aftermath because it wasn’t a finite event?" Alpert said. "That's probably the thing I worry about first."