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Taken directly from a Private Equity Firm`s Website
Outsourced Business Services
The business services market is the third largest sector of the domestic economy, at $400 billion in annual spending. Business services is a broad sector comprised of many outsourced services such as accounting, benefits administration, marketing research, training and certification, document management, staffing, human resources, purchasing, logistics management, and facilities maintenance.
We believe the business services market is attractive for several reasons. First, the continued restructuring of corporate America has resulted in businesses focused on their core competencies with more of their ancillary activities outsourced. This has facilitated the development of a large and fast-growing business services sector. Second, aside from the large size of the overall market, nearly all of the market`s sub-segments are estimated to be growing at over 10% annually, with several growing as fast as 40%. Last, with rare exceptions, business services companies have low capital expenditure requirements and high margins—in many cases, these companies have capital expenditure requirements below 1% of revenues with low fixed asset bases, allowing for very attractive returns on invested capital.
As the outlook for business services is excellent and as companies of all sizes continue to outsource costly, time-consuming, non-core functions, we will continue to proactively seek out opportunities in this attractive sector.
Education and Training
Information, knowledge, and education have become crucial to success in the New Economy. The education levels demanded by employers have risen consistently over the past decade. Today, the U.S. Labor Department estimates that 85% of the nation`s jobs require education above the high school level. Demand for advanced education has already outstripped supply.
Consequently, education is the second largest segment of the economy (after healthcare). Industry analysts at Credit Suisse First Boston estimate the domestic for-profit education and training market to be a $95 billion industry annually, growing at 13% per year through 2005. The sector encompasses a wide variety of services including corporate training, K-12 schooling, and post- secondary education for career-oriented students. We are primarily focused on the career- oriented, post-secondary and corporate training segments that together represent a $40 billion market. Some of the drivers of the sector`s growth are the increasing demand for skilled employees, the continuing integration of information technology and education, and the increased outsourcing of corporate training.
We are very interested in participating in this expansive and growing market, and in particular, has targeted sectors with exceptional growth potential such as corporate and non-corporate soft-skills training, commercial art education, and medical training.
Marketing and Media
The media and advertising industry is in the midst of a cyclical recovery. According to industry research, 2001 was only the sixth time since 1950 that advertising spending saw negative year-over-year growth. Advertising growth has historically tracked GDP growth, and in periods of cyclical recovery, it has generally outpaced GDP growth. We like these positive macro trends and are also attracted to the industry’s high returns on capital. Furthermore, we believe media and advertising to be sectors in which exceptional management is particularly essential to success, and we seek to partner with only the highest quality management teams in this industry. We have extensive prior experience investing in media and advertising companies, and our connections within the industry give us unique insight in evaluating new investment opportunities.
Consumer Products
Although the consumer products industry covers a wide variety of sectors, we target brand and/or manufacturing companies whose products are clearly differentiated by functionality, quality, or material content—rather than purely by fashion or style. We look for situations where there is strong potential for geographic or distribution channel expansion, and, as always, we seek to partner with exceptional, proven management teams.
Healthcare
The healthcare industry is the largest segment in the United States economy, representing $1.2 trillion. It has risen at a rate approximately twice that of inflation over the last decade, and as aging baby boomers continue to drive volume, industry growth is expected to continue.
In 1999, working taxpayers outnumbered nonworking pensioners in the developed world (North America, Japan, Europe, Australia, and New Zealand) by 3 to 1. However, by 2030, the ratio will fall to 1.5 to 1. Healthcare budgets of these nations are being revisited and all sectors of the health system – payers, providers and patients – are expected to evolve with the demographic shift.
Based on industry sources, there are fewer than 1,000 office-based healthcare practices in the United States with more than 25 providers. The fragmented nature of the industry, regulatory concerns, in addition to the rise of managed care, has had a tremendous impact on the way providers conduct their business. Many providers now participate in complex reimbursement arrangements, resulting in multiple transactions, information exchanges and other communications with payers for each patient visit. Many have struggled with this new impact on the industry, and consolidation has become increasingly attractive.
While the current healthcare environment is rife with uncertainty, opportunities to capitalize on strong long-term trends are available. Healthcare information technologies and consolidated provider services (assuming stable reimbursement dynamics) are two attractive industry segments for potential investment at this time. We will continue to utilize our healthcare experience and expertise to aggressively seek such opportunities.
Financial Services
The financial services industry is changing significantly, through consolidation, regulation, technology, and specialization. We look for companies that are in specialized niches—clearly defined by geography, product, or distribution—with proven management teams. We are willing to consider contrarian plays and proactively seek out opportunities to invest in markets that are experiencing a capital shortage. We recognize that many financial services opportunities require more capital than one private equity sponsor can supply alone, and we are prepared to lead or participate in a group of founding investors in such situations.
