The Strategic Secrets of Success in Private Equity

Hal Rosenbluth sits down with seasoned private equity partner Greg Moerschel to unravel the strategies that empower private equity players to thrive amidst the constant evolution of the healthcare industry. They talk about the qualities that have made his firm so successful, where we think healthcare is headed, and how technologies like A.I. are going to influence that evolution.

I hope you enjoy reading our discussion.

Making Waves is a series of conversations between New Ocean Health Solutions CEO Hal Rosenbluth and a variety of executives from a wide range of industries and areas of expertise. The below article has been edited for length and clarity from the podcast version of Hal’s interview with Greg Moerschel, Managing Partner private equity firm, Beecken Petty O’Keefe & Company.

Hal: Greg, I love to tell the story of the moment I knew I wanted to do business with you. I had heard all kinds of horror stories about private equity, but I had to make the decision as to whether or not we’d be working with you, and so I called you. I wanted to ask you a question.

And you said, “Hey Hal? It’s dinner time. Love to talk to you, but I want to put my kids to bed first.”

That was it. You were going to get the business because that showed me character. It showed me family. It showed me things that I respect.

So not only do I like you personally, but it was great doing business with you. We never had an issue on anything, and we’ve been friends ever since. And I, I just love that because people always told me, “Don’t do private equity.” Well, I did, and we both benefited by it.

You know, you’ve been in business like this for 30 years. Tell me a little bit about how you got started.

Greg: Well, thank you for inviting me, Hal. How nice to see you again, as always. I’ve been very fortunate in my career. Really, it’s been a combination of good fortune and luck.

And what I’ve learned is the harder you work, the luckier you become. And I started with a great opportunity that my parents provided to go to a good school. And as I explored the job market, I really had no skills, didn’t have a particular ambition to be in finance, and I probably didn’t know the difference between investment banking and garbage collection, although now I appreciate that they’re very much the same thing.

But my strategy when I was looking for a job was just to say, “You’re going to work hard. You’ve got to learn as much as you can.” So I was fortunate to be hired into a large institute, and I was promptly assigned to an oil and gas transaction. And I spent six months modeling natural gas wells in Houston, only to be rescued by the health care team.

And over a span of about 24 months, we developed a franchise advising health care companies, and we eventually were very successful at that. I did have another inflection point in my career where I was invited to write equity research. One of our clients was going public. There was no equity research analysts at the firm at the time, and they said, “Do you want to do it?”

And I said, “Of course.” And that was an opportunity for me to really learn health care. And the first thing I did was spent a month in a library—this was before the advent of the internet—just reading about Medicare, reading about demographics, and developing some themes that I thought would appeal to investors.

I became a very good research analyst, and it encompassed a number of skills selling an idea to an unsuspecting investor, researching companies, doing analytics. And so forth. And when the opportunity came to join and co-found BPOC, it was yet another opportunity to continue growing. So we’ve been in business now for 26 years, and the person who hired me out of college just retired five years ago, and he has been my mentor throughout my career. And that’s how we grew the business.

Hal: You know, we’ve become close friends, confidants. We share lots of things going on in our lives, learning from each other. You’ve always been a great family man. Total respect for that. I mean, your values, your character and your integrity, which are all the reasons why, I was told, you don’t want to work with private equity.

And yet I found the exact opposite you and your leadership.

Greg: Well, I appreciate that. I think that’s years in the making. And I think we position ourselves in the market to be that that firm because we all run the same spreadsheets, all of our peers, we have the same technology, we have the same approach in many ways. But I think the tiebreakers tend to be the human component.

It doesn’t mean we don’t hold each other accountable, but I think one thing I’ve always observed as well is businesses don’t always go up and to the right. So if you don’t have a foundation of a relationship when things do go poorly, it’s very difficult to start from scratch. And we put a lot of time in learning about the people we’re getting involved with.

Hal: Does your gut ever play in that decision to get involved with someone?

Greg: Absolutely. And I’ve made some mistakes. The old saying of “Never buy something from a man out of breath” comes to mind.

And that means that if somebody is desperate to sell to you, but won’t say so, if you don’t pick up on that indication, you’re making a mistake. So time, patience, assessing people holistically, I think is a real critical element of our success.

Hal: And you have to do that when you hire people into your firm, too, I’d imagine. I mean, how do you make that decision?

Greg: Well, again, for our firm, we’re relatively small with 25 people. So it’s a big family. And if there’s a partnership like that, everyone’s personalities are amplified just by virtue of its size. So spending time with people off campus, outside the lines, is really what makes the difference for us, because everyone at some point has a level of competency that is expected in our business.

Hal: So you focus on health care. What the hell is going on in health care these days?

Greg: Well, it is certainly a large, growing, complex industry, which by virtue of those facts, provides us endless opportunity. But the system is definitely broken. If you measure it by the expenditures that are increasing at such a rapid rate relative to the economy, it’s going to have to adjust at some point. So there’s many things contributing to that.

Hal: So you have to obviously do a lot of thinking in your research. I mean, a lot of it comes naturally, a lot of it’s hard work. At the same time, I look for that unknown, unmet need. And best-case scenario, you find that, and you start a business, you run with it, and then others follow.

Hal: Similar to the in-pharmacy clinic business that we that we started. Now, what do you think needs to take place in health care? Is there is there an unmet need now?

Greg: So we look at it like a “quadro-lema.” And what I mean by that is, it’s not a dilemma. There are four problems or challenges: access, cost, technology, quality, and oftentimes are all competing. And if you look at the data, demographics are one thing, but proliferation of technology is actually driving costs more than anything. So somehow you have to expand access, improve quality, infuse new technology for lifesaving purposes, and do it without inflating costs endlessly.

So that challenge is unending. I’m not sure there’s a perfect solution, but the entrepreneurs running small businesses are trying every day to lower costs without harming access and quality.

Hal: You know, years ago, I used to say time is the currency of the future. Now the velocity of change is hypersonic. Everything is changing. Every day there’s something new, something is being disrupted. I mean, it’s probably a good thing for you to invest in a company that can disrupt.

How do you keep your company agile in that regard?

Greg: That’s a big challenge, to be honest, because culturally, we tend to be fast followers. Our investors expect us to buy businesses that are intact, stable, growing, and deploy technology that others have developed.

So it’s not necessarily our strategy to be on the cutting edge, but we’re adopting technology, for example, for efficiency, speed, quality, things like that.

Hal: And you also get involved in consulting with companies. And so now we have the advent of AI, and that’s going to have a tremendous effect on the healthcare industry. I always get concerned about nefarious users. What have you shared with the companies you consult with about how to approach this new technology?

Greg: So on the AI front, most of our companies are charged with having a standing committee to assess the opportunity and the risks. So we’ve established these ad hoc Manhattan projects in many of our businesses. And initially, it seems to be that the back office is going to be the first to be affected in a positive way.

Because there are many back-office functions that can be automated. So to answer your question, I think we’re focused on framing it in that way as opposed to ignoring it and hoping it doesn’t threaten you or you’re missing an opportunity.

Hal: Yeah, I kind of look at it the same way in that we’ve invested in setting the groundwork and the infrastructure for AI. But I think new players are entering the space all the time, and that cost is actually going to go down, I think.

So all those people are spending a tremendous amount of money right now, are probably spending too much.

Greg: They probably are spending too much and they’re probably doing it prematurely. We’re dipping our toe ourselves. I mean, we’ve got some tools that are now gathering data in a pretty extensive fashion to run macro correlations in health care, for example, unemployment versus health care spending, nurse graduation rate versus nurse wages.

I mean, these are macro data sets that I think can be aggregated quickly and assembled in real time that are going to inform that top-down analysis as we look at sectors.

Hal: And so now when we’re out here, in North Dakota, I think about rural health care. A lot of challenges there, huh?

Greg: Certainly. Rural health care is a real challenge. It’s exacerbated by demographics. So the towns around here are all getting smaller, and they’re getting older. The population of Linton has been declining since 1950, and it’s down to about 900. You can’t get staff. So you’ve got pressure on both sides. Now, rural health care’s always had a bit of a reimbursement advantage.

It is reimbursed at a higher rate in some cases. That said, it’s very difficult to get quality health care in parts like this. So I think that’s an opportunity once again to infuse technology, and the technology exists. Telemedicine is the obvious choice, but it continues to be a soft spot in the mosaic of access in the country for sure.

Hal: Yeah, but it’s an important part of our country. Very important. And I don’t think we could necessarily survive without a lot of the farming and ranching work done here. We’d have to import everything.

Hal: I mean, where else can you do business on a handshake?

Hal: Well, it’s has been a fascinating conversation, Greg. I’ve now known you for close to 20 years, and I still learn from you all the time. And so I just want to I want to thank you. Thank you.

Greg: Cheers.