Private Equity Perspectives on Collaboration and Competition

An interview with David Parker of Ampersand Capital


PULSE: David, thanks for your time today. To start us off, could you give us some background on Ampersand as well as your experience at the firm?

David Parker: Absolutely, Ampersand Capital is a middle-market growth / private equity firm headquartered in Boston, Massachusetts. We focus exclusively on healthcare with specific attention given to laboratory services, pharma services, and specialty pharma. We are typically the first institutional investor in founder-owned businesses, and work with the entrepreneur to help take the company to the next level.

I joined Ampersand at the firm’s inception in 1994.  I’ve spent the past 20 years focusing on middle-market investing and have taken on operating roles at our portfolio companies from time to time.

PULSE: That’s very helpful, you mentioned that the firm is based in Boston how’d you end up in San Diego?

David Parker: At Ampersand, it isn’t uncommon for members of the investment team to take on a management role at our portfolio companies. Early on in my career I had an opportunity to step in and assume the role of CFO at Novex, one of our first portfolio companies in the laboratory products space. I moved to San Diego as part of that role and after finishing that assignment my partners and I decided it made sense for me to stay. Being on the West Coast helps our firm with deal coverage as well as provides a local touchpoint for our west coast based portfolio companies.

PULSE: This year’s theme is focused on exploring how collaboration and competition continues to change and shape the environment. Since joining Ampersand, how have you witnessed competition changing / shaping the private equity market?

David Parker: It has certainly become a more competitive market over the past 20 years.

Generally, deals originate in either of two ways: (1) A company is actively looking to be sold and may / may not have hired a banker to market the transaction, or (2) PE firms proactively reach out to interesting companies to initiate a transaction.

When a company has decided to actively market itself for sale, it is expected that there will be other potential buyers and that the company has spoken with several interested parties. However, recently even in the later situation, where we initiate a call / conversation with a potential target, it has become exceedingly rare that the company has not already had conversations with other buyers / interested parties. This is a sign / product of the market becoming increasingly competitive.

At Ampersand our response has been to hone our focus by specifically concentrating on the areas where we have expertise. This way we can help grow our portfolio companies by providing access, advice, and strategic guidance rather than only providing capital.

Our market is segmented by more than just industry, it’s segmented by fund size as well. We specifically focus on companies that fit our specific industry and size criteria where we can truly be a value added partner.

PULSE: Interesting, can you elaborate more on how has this impacted your firm’s deal sourcing efforts?

David Parker: Many of the deals we consider are proprietarily sourced. We’ve intentionally built out a platform and process to enable us to do this effectively. We have a great track record working with accomplished executives, consultants, and professional services firms on a repeat basis. We also have a dedicated coverage effort to stay in front of the companies that we find interesting. That effort is entirely done in house.

PULSE: How about in the companies you’ve worked with? How have you seen collaboration / competition come in to play there?

David Parker: We do a lot of work in the clinical diagnostics arena. Within molecular diagnostics, which is one of the largest growth segments within diagnostic testing, there have been multiple cases in which collaboration between entrepreneurs, hospitals, and academic learning centers has played an important part in the development of the industry.

We weren’t investors, but there is a company called Assurex who partnered with Cincinnati Children Hospital and the Mayo Clinic to develop a pharmacogenomics-based test platform that enables better treatment decisions by clinicians treating behavioral disorders. More specifically, their technology is focused on identifying and using molecular markers to help detect the effectiveness of neurology based drugs… basically figuring out who was going to, or not going to, respond to drugs for bi-polar disorders. Within that field it has been major issue to identify which drugs are effective / appropriate to prescribe. This company and others like it can offer ways to stratify patients based on whether or not they were likely to respond and then use that data as part of the screening for the clinical enrollment process. However, the resources required to explore technologies such as this are costly and they needed to look for outside partners as a result.

As I understand it, the core technology was developed at Cincinnati Children’s Hospital, which enabled them to move forward and develop the test platform. Without that partnership it would have been a much more challenging environment.

PULSE: Is that type of relationship relatively new? Has it become more and more common place?

David Parker: Within the diagnostics industry it certainly has become more prevalent. Molecular diagnostics really didn’t exist 20 years ago, PCR technology which has enabled the entire sector was pretty new then and hadn’t gained traction in the sector. Technology was one of the major developments that has helped shape competition / collaboration in this industry.

PULSE: Have you seen circumstances in which competitors who you wouldn’t normally expect to partner work with each other in untraditional ways?

David Parker: There was one company that we invested in within the past 10 years.

In this circumstance, a hospital system had partnered with a couple of scientists to develop a new approach to test for genetic abnormalities in children. As a standalone, the company’s relationship with the hospital provided them access to equipment and facilities that they would not have had access to otherwise. In exchange the company offered them equity.

We decided to invest in them and fund their next phase of growth, however, the hospital continued to own an equity stake. In that case the hospital had a large testing laboratory. So it was a way for the hospital to have a window into cutting edge science and potentially make some money as well, but they weren’t really equipped to provide all the types of help that scientific founders need to build a business.

So we invested in the business and provided support and guidance on that front. The two founders had previously been at a leading academic center of excellence for cytogenetics where they had run a lab. They saw an opportunity to pioneer this new technology. They built the business to an interesting size and then we stepped in to help…. the founders stayed involved and the hospital kept an ownership interest, but the company was able to afford building their own specialized laboratory space.

I think that is a one example in my experience of how collaboration can drive development and growth across these industries.

 

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David J. Parker

General Partner

Dave, who has more than 15 years of private equity experience, joined Ampersand in 1994. Dave’s board seats have included Bako, NOVEX, Signature Genomics and Roadrunner. Prior to joining Ampersand, Dave spent five years consulting at Bain and Mercer and four years in corporate lending at Bank of Boston. He holds a B.A. in Government and Economics from Dartmouth and an M.B.A. from Wharton.

Harris DrantchComment