AA Advisors

Pharos capital partners

fund IV

Manager Overview

Pharos Capital Partners is a US physician-founded healthcare private equity group based in Dallas and Nashville with a 22-year history of investing in LMM healthcare services companies across the US. Pharos’ mission is to target attractive risk-adjusted returns while investing along the value-based care curve in growing healthcare services companies that lower costs, improve outcomes, and expand access to care, predominantly in rural and underserved markets.

Strategy Overview

Value-based care opportunity-set: in response to weaknesses in the existing healthcare system, the industry is currently being disrupted by a shift from fee-for-service due to a growing array of value-based or outcome-based initiatives. As a result of this growing trend, clinician-owners are increasingly seeking partnership and support from firms that are well-versed in driving growth and navigating the complexities of value-based care. 

Focused investment criteria: physician-founded US healthcare services firms with $10m-$50m in revenues, $1m-$10m EBITDA, strong management teams, scalable businesses and scalable market position, with multiple exit strategies.

Private equity approach to investing: each portfolio company is a buyout controlled by Pharos and typically structured with a 7% to 8% current cash interest payment each quarter. 100% of Fund III deals have a similar current cash interest component, with 120%+ of invested capital realized through Q3 2022 via interest income and fees, as well as exit proceeds from first three sales.

Pharos IV will target 10-14 investments and is now well seasoned with its fourth acquisition completed in September. Existing portfolio:

1. THEMA Health Services: a hospice care company, this is similar to Pharos’ successful Fund III investment in Charter Health Care.

2. Vantage Outsourcing: a surgical logistic company targeting the delivery of fractional care (e.g. ophthalmology) to rural communities.

3. Sanderling Renal Services: a full-service provider of dialysis and renal telemedicine services focused on provision to patients in under-served communities. Sanderling is set to be the leading homebased nephrology and dialysis provider in the USA.

4. Renal 360: a comprehensive nephrology practice and chronic care management company. Renal 360 has developed a unique model centred on early detection of unidentified chronic conditions using proprietary data analytics.

ImpacT

Overview:

Pharos is minority-founded/owned and actively invests in healthcare businesses which employ women and minority groups (employee composition of Pharos III portfolio companies is 77% women, 34% African American, 10% Hispanic and 7% other minority groups).

Healthcare Impact Measurement & Management (IMM):

GIIN’s 2017 “Impact Measurement in the Healthcare Sector” report included a study of best practices amongst select Healthcare Impact Investors. The study showcased 14 commonly used metrics to measure Healthcare Impact. Pharos’ approach demonstrates strong alignment with each of these goals

Rural versus urban healthcare gap:

Since 2005 more than 180 rural hospitals have closed in the US and a recent report from the National Rural Health Association uncovered that only 9% of US physicians can reach the 20% of citizens based in rural locations. A US Census Bureau report found rural populations are 30% more likely to be at or below the poverty line and are 27% more likely to be over the age of 65 compared to non-rural areas . These demographic trends drive higher prevalence of chronic disease among rural populations. Comorbidity rates are also higher in rural areas, with citizens 33.3% more likely than those in non-rural areas to suffer from two or more chronic conditions as per the CDC (Prevalence of Multiple Chronic Conditions Report).

Pharos has a clear alignment with a number of the UN Sustainable Development Goals:

1) No Poverty: Pharos focus on the inclusion of underserved populations, investing in companies that bring essential needs to underserved and remote communities

3) Good Health and Wellbeing: Pharos make investments with the goal of increasing access to healthcare while simultaneously improving health outcomes and lowering overall costs

5) Gender Equality: Pharos actively invests in healthcare businesses which employ women and minority groups. Employees of Pharos III portfolio companies are made up of 77% women, 34% African American, 10% Hispanic and 7% other minority groups

8) Decent Work and Economic Growth: Pharos contributes to job creation, particularly in rural communities. Pharos III portfolio companies have more than doubled their staff during Pharos’ ownership to over 5,000 employees

10) Reduced Inequalities: Pharos investments focus on reducing inequalities in healthcare in rural and inner-city populations

11) Sustainable Cities and Communities: Pharos targets companies that increase access to care in underserved populations to help make communities more inclusive and sustainable

Fund terms

ENQUIRES