DW Healthcare puts largest fund to work

The firm has invested about $80m from its $265m Fund III and expects to benefit from increased transaction volume in the US healthcare sector.

DW Healthcare Partners is doubling down on the North American healthcare market. 

Following the close of its Fund III in February on $265 million, more than 60 percent larger than its $162 million Fund II, the Utah-based firm has opened a Toronto office to better source investment opportunities in the Eastern US and Canada. DW Healthcare has invested roughly $80 million from Fund III in three transactions to date, acquiring medical bandage company Z-Medica, emergency care training business Health & Safety Institute and veterinary drug manufacturer Med-Pharmex.

“It’s probably the best start to a fund that we’ve had,” founder and managing director Andrew Carragher told Private Equity International. 

While Fund III will mirror the strategy of Fund II, investing across multiple segments of healthcare, the fund will target slightly larger positions in companies with around $6 million to $7 million in earnings before interest, tax, depreciation and amortisation.

“We’ll probably just own a little bit more ownership of the companies,” Carragher said. “Before, we were buying on average about 60 percent [stakes]. We think we’ll be buying about 70 percent or 75 percent this time.”

Fund III will also benefit from changes related to The Patient Protection and Affordable Care Act, President Barack Obama’s healthcare reform bill passed into law in 2010, according to Carragher.

“There are definite tailwinds for us,” he said. “[The Affordable Care Act] is bringing on anywhere from 35 million to 40 million Americans that never had healthcare coverage. That’s almost the size of Canada, so there’s going to be a huge increase in volume.”

The new healthcare legislation may also represent a competitive advantage for DW Healthcare due to its sector focus.

“It creates more pressure on private equity investors to make sure they’re up to speed on regulation,” Carragher said. “For people like us, we can spend all day doing that. If you’re a generalist, it’s a lot harder.”

DW Healthcare was founded in 2002 by Carragher and managing director Jay Benear and has more than $500 million under management.

BerchWood Partners acted as placement agent for Fund III.