Testing an Investment Hypothesis in Dermatology
A structured sprint to validate and prepare for an eventual deal in the sector.
The Challenge
A New York-based private equity firm, wanted to invest in the multi-site dermatology industry. They had invested in the physical therapy space and wanted to recreate that success. They noticed that the dermatology industry was heavily fragmented and saw an opportunity to buy small, consolidate and build. They didn’t have a target company in mind, but wanted to move forward with a sector thesis sprint so they could test an investment hypothesis and identify potential deal targets with the help of high-level industry experts.
Overall, a sector thesis exercise would lead them to a validated investment thesis. It would help them:
- Procure accurate information on the dermatology space — where it was, its current trends, and how a PE firm could move into the industry
- Connect with an industry advisor who could answer all angles and serve as a guide throughout their exploration
- Identify a platform for which they could compete
“When it comes to sector thesis sprint, there’s no substitute for experience, especially when the company has never been in that space. Apex Leaders knows how to connect the right parties and arm companies with the knowledge they need to move forward.”
Jason Oyakawa
Chief Growth Officer, DermPro
Target Profile
They needed to connect with board-level executives and operating partners in two categories:
- Business operations — Managing directors and C-level executives in private or multi-site dermatology practices, as well as operators and former executives
- Medical tech executives — Professors and medical professionals who could dive into the science and tech of the dermatology industry
The Search
As they moved forward, they needed to answer the following questions:
- Was there an opportunity to build a dermatology practice by starting small?
- What was the risk of getting a significant amount of equity to work if they started small?
- Were there key risks in their investment thesis besides not being able to put enough capital to work?
To help them find answers to these questions, Apex Leaders quickly contacted relevant industry experts and vetted them based on experience, interest and cultural fit. Ultimately, we found two dedicated river guides (industry experts) and a number of short-term advisors to lead our client in an industry in which they had no previous experience.
The Results
Overall, Apex Leaders identified 28 potential advisors. We presented and engaged the top seven advisors:
- Managing Director, DermPRO (the ecommerce and Marketing Service built for aesthetics providers such as dermatologists, plastic surgeons, aestheticians and med spas)
- Former Chief Growth Officer, DermOne
- Director of Operations, Riverchase Dermatology
- CEO, Dermatology Solutions Group
- Vice President Business Development, Operations, Upstream Rehabilitation / Physical Rehabilitation Network
- Founder and Former President and CEO of the Easter Region, FastMed
- Professor and Head of Dermatology, Rutgers New Jersey Medical School
Last Word
High-level advisors helped our client validate their investment thesis and equipped them with an informational advantage over competing buyers. Thanks to their comprehensive prep work, they were able to appeal to the seller’s vision and position their firm as the preferred buyer. In the end, our client successfully closed on its target and acquired a majority stake in a Texas-based operator of dermatology clinics.