Selecting the Right Private Equity Partner to Build a Leading Outsourcing Provider

The pharma outsourcing market is expected to grow steadily over the coming years, driven by continued biopharma R&D investment, macro healthcare trends, and the emergence of new technologies, such as cell and gene therapy. Biopharma will continue to seek specialized providers of services and manufacturing, particularly for emerging, complex manufacturing technologies. There is a growing opportunity for contract service providers that are properly prepared and positioned to maximize their growth. This can be significantly enhanced by partnering with the right investment team that provides deep experience in the sector. 

Compounding Outsourcing Market Growth

There are two key pharma industry trends that are creating compounding growth effects:

  1. Expansion of biopharmaceutical R&D budgets
  2. Increasing demand for outsourcing services

Biopharma companies continue to access specialized technologies and capabilities from third-party providers. As technologies and end products become increasingly complex, there is a continued demand for outsourced services.

Important Investor Attributes

Having the right investment partner can help biopharma service providers build market-leading outsourcing organizations. Access to capital is only one part of the equation — experience, networks, and sector knowledge are all critical value-adds that an investor should contribute to the partnership. There is a record amount of dry powder in the investment community, but the right partner needs to bring more than just dollars to the table. Investment firms with direct experience in the service provider’s subsector will understand the nuances of the business and provide valuable networks of potential executives and board members with direct, relevant experience.

For example, the investor must understand the need for ongoing investment in capacity and capital expenditure (CapEx) requirements (e.g., establishing facilities, building teams, buying equipment and getting quality systems up to speed). As capacity and access to new technologies and processes is critical for an outsourced service provider’s success, there should be a deep understanding of the details and costs involved. It is best practice to partner with an investment team that has been through the process before and has the wherewithal to follow through in order to minimize risk. 

Experience and knowledge must be combined with a practical, hands-on partnership approach. The best investor becomes a true partner with the management team, bringing expertise, capital and a collaborative attitude. Partnering with an investor involves a multi-year commitment; therefore, a solid working relationship is a must if the business is going to be a success.

More Than a Funding Source

Investment firms create value, specifically for lower-middle-market providers, by first applying basic business principles: operating systems and controls, financial rigor and compliance, regulatory and quality commitments, addressing corporate governance and preparing the business for growth.

Regarding growth, the focus is on helping management teams understand the contributions of different products and services to the business, which is essential to making the right decisions. Monthly and quarterly financial targets help the team track both top- and bottom-line results and enable the investor to work with management to stay on target and on budget. In addition, the investor and management team should be in sync regarding organic and inorganic growth opportunities (e.g., driving margin expansion while looking for add-on opportunities to accelerate growth).

Meet Ampersand Capital Partners

Ampersand Capital Partners is focused on the healthcare space, particularly pharma outsourcing, with approximately 25 years of experience partnering with service providers and contract manufacturers producing medical devices, blood products, small and large molecules and cell/gene therapies. We have helped these firms grow, through both organic and inorganic approaches, into businesses attractive to large strategic acquirers. Ampersand brings significant sector experience to CDMO investments, having been involved with a number of the leading players in the space – Avista Pharma, Brammer Bio and Lake Pharma, to name the most recent ones. This history and experience is a significant value-add for the next companies we invest in.

When Ampersand partners with entrepreneurs, we bring our team to the table, as well as a broader team of experienced operating partners and current and former CEOs and CFOs. We seek to partner with companies that are willing to accept funding in addition to ongoing guidance and advice. Our focus is on growth and companies operating in markets with strong underlying fundamentals, companies that are differentiated in their particular niches and management teams that are open-minded and looking for a partner that offers more than just capital.

David Q. Anderson

David Anderson is a Partner at Ampersand Capital, Boston, MA. David joined Ampersand in 2010 and participates across many sectors in healthcare but with a special focus on CDMOs and biopharma services. David's current and past board seats include Accuratus, BioClinica, Brammer Bio, Elite One Source, Histo-Scientific Research Labs, and Key Biologics. David holds a B.Sc. from the University of Aberdeen, Scotland, a Ph.D. in Cancer Immunology from the University of Sheffield, England and an M.B.A. from Babson College, MA.