In the world of locum tenens mergers and acquisitions, the role of private equity investors is seldom well understood. Melissa Sprinkle, a Managing Director for private equity firm Owner Resource Group, seeks to remove the shroud of mystery that often accompanies discussions about private equity firms.
She wants to ensure locum tenens agencies understand what private equity encompasses and how a firm like ORG can help businesses realize their goals.
In the world of locum tenens mergers and acquisitions, the role of private equity investors is seldom well understood. Melissa Sprinkle, a Managing Director for private equity firm Owner Resource Group, seeks to remove the shroud of mystery that often accompanies discussions about private equity firms. She’s set out to ensure locum tenens agencies understand what private equity encompasses and how a firm like ORG can help businesses realize their goals.
“I think private equity can be confusing for business owners,” Sprinkle says. “They often actually mistake us for an investment bank. They think, ‘Oh, you’re just looking to sell my company,’ and we’re not. We’re looking to invest in and partner with them.”
Over the past few months, Locumpedia has uncovered why and how M&A activity exploded in the locum tenens market since the pandemic began in 2020. We’ve broken down the burst of M&A action in the locums space — eight transactions, 17 companies, and hundreds of millions of dollars invested over the past three years — and spoken to two healthcare investment firms who helped broker many of those deals. Private equity firms are another critical piece of the locums M&A puzzle.
A sponsor in a locums M&A deal typically refers to either “strategic” sponsors or other locum tenens businesses that acquire an equity stake in a company. They may also refer to private equity sponsors. These sponsors are the financial backers who can provide strategic advice, the cash needed to acquire a business, and sometimes even operational support.
The role of strategic investors in this M&A scenario is easier to understand: a locums staffing agency acquires another locums company. The two have a shared goal and understand the market because they operate in the same space. Private equity firms don’t typically deal exclusively in healthcare staffing, so their role differs greatly. Private equity groups raise capital from wealthy individuals or institutions and invest in businesses, help them grow, and eventually sell them for a profit. ORG has experience working with healthcare and staffing companies, so locum tenens fits in well with their approach.
“As a firm, we’ve taken a diversified approach to investing,” Sprinkle says of ORG. “We’ve spent so much time in B2B tech services, and staffing falls within that. We’re also very involved in the healthcare technology space, and we have investments in manufacturing and other B2B-type companies that outsource their services.”
The average locums business owner may already know the private equity investors and understand their motivations. But several degrees of separation typically exist between businesses and investors, though. Sprinkle thinks it’s important to get to know those business owners, build relationships, and show them the benefits of working with a private equity firm.
“I basically do a full needs analysis with them,” she confirms. “I ask questions and try hard to understand how their companies are positioned and what makes them unique. I want to learn their growth story because we’re growth investors looking to support companies with a good track record and trajectory ahead of them.”
ORG was founded in 2008 by professionals of family-owned businesses. They understood how much emotion goes into a business transition and wanted to create a private equity group that took that perspective into every deal.
“It’s our job to see how a company is positioned now and find a way to be the growth engine that supports their vision,” Sprinkle says.
Turning Challenges Into Opportunities
Sprinkle has invested significant time over the past few years learning about locum tenens as ORG looks to diversify its portfolio into the market. It shows plenty of promise for private equity investors, she says.
Recent M&A activity helped propel locum tenens staffing into a $6.1 billion industry, according to Staffing Industry Analysts. If the 12% growth projection for 2023 proves correct, the segment will be nearing $7 billion early this year. Sprinkle is optimistic about the growth projections and says right now, there are many upsides to investing in locums.
“I think on the clinical side, physicians are much more open to locums than ever before, and then younger generations are coming in and want more flexibility,” she says. “There used to be a negative bias against it because it was expensive for hospitals, and there were a lot of headwinds, but that’s starting to quiet down. It’s opening up the landscape for locum tenens companies to grow.
“Because of that growth and the trajectory of the industry, when businesses are looking for a capital partner, they are getting rewarded with higher multiples.”
Sprinkle notes there are challenges to working with locums companies. There’s nothing she’s not already used to, though. She claims “macro-level environmental factors” such as inflation, high interest rates, newly elected politicians, and legislation might affect the industry beyond an investor’s control. She also says certain regulatory challenges are unique to the healthcare industry, but these “challenges can become opportunities.”
“This is a strong industry,” she posits. “The growth is there. There are many different ways to support growth that justify higher multiples than some other industries. If a locum tenens company is inching its way toward considering an exit or finding a capital partner for growth, I want to show them what’s possible.”
Looking for The Upside
Sprinkle says that ORG’s first step is to build a trusting relationship before becoming a locum tenens company’s capital partner. There’s more than one outcome for a business owner partnering with a private equity firm. Many leaders aren’t just looking to make a complete exit. Sometimes, they want to relinquish some of their responsibilities and offload them to somebody else, or add additional capital to scale the business. Whatever the case, Sprinkle believes there’s potential for a partnership.
“I would say traditionally private equity firms just wait for investment banks to bring them deals that are ready to go,” she says. “That’s kind of the model in private equity. But at ORG, we always take a more relationship-focused approach to sourcing our partnerships. I attend all of the association events, and we have dinner and drinks with them. We spend a lot of time getting to know people and what makes the company great. I do my best to understand what business owners and management teams want to accomplish ahead of a transaction.”
ORG’s “relationship-first” approach helps set up the client partner for success, Sprinkle says. She wants to get to know them beyond numbers on a balance sheet — ORG chooses to invest in a company with a strong culture, an established brand, and a legacy. ORG isn’t looking to reinvent the wheel. They aren’t going to overhaul a business completely. They’ll just find ways to use their investment to improve the business.
“We care about the intangibles that can often be overlooked,” she notes. But we also have a proven playbook that we’ve run, and we have a track record of doubling or tripling the profitability of the companies we invest in. You have to understand who your partner is and make sure that those values and personalities are aligned because you will spend a lot of time together.”
Sprinkle claims that ORG’s approach to business drives them to target a strategy that preserves the business’s legacy while maximizing a business owner’s financial upside.
Sprinkle says they don’t want a business owner ever to feel forced to complete a transaction. The “long-term” relationships Sprinkle builds are long-term without any commitment required. Sprinkle says that by putting a business’s interests ahead of ORG’s, the company can feel confident coming back to ORG when they are ready to find a capital partner.
“I’ve been doing this for 15 years, and I’ve known people for 15 years, and they are not ready yet [to make a transition],” Sprinkle explains. “But we have this relationship established so they can come to me when they are ready.
“That’s how I find our partnerships — by spending time in the industry, asking lots of questions, educating folks on their options, and then, when they are ready, I can be there.”
Sprinkle and ORG are building valuable connections with locum tenens businesses. The group values quality over quantity of investments, so her goal is to find at least one locum tenens partner this year.
“Our goal is to find our platform,” Sprinkle says. “A good year for us is two to three platform investments. Our goal is to find the platform, figure out how we can work together, and then maybe go out and do one or two add-on transactions for that platform. That would be a successful partnership for us within the locum tenens space.
“There is so much activity in the locum tenens space, and this industry is still relatively small. I would say my goal is just to find one platform to partner with and to help grow them and support from there.”