Inside a Carlyle-led $175 million investment in digital-healthcare firm Grand Rounds: Here's how the deal came together, and what it says about the future of healthcare.
- Grand Rounds, an online healthcare assistant to employees at self-insured corporations like Walmart and The Home Depot, just raised $175 million led by private-equity giant The Carlyle Group.
- The growth-equity deal, announced earlier this week, will help the digital health company expand into a customer segment it hasn't fully penetrated yet: the middle market.
- CEO Owen Tripp spoke with Business Insider about what the investment will mean for the company as COVID changes employers' healthcare needs.
- Tripp spoke with us alongside Carlyle dealmaker Robert Schmidt, who is joining Grand Rounds board of directors.
- They shared details about the genesis of the deal, Carlyle's due diligence process, and deal talks that took place over Zoom calls.
- Visit Business Insider's homepage for more stories.
Grand Rounds, an online healthcare assistant to employees at corporations like Walmart, Salesforce, and The Home Depot, will now focus on selling into middle-market companies after leading a $175 million investment from The Carlyle Group earlier this week, the company's CEO told Business Insider.
"At least 40 to 50 million lives are employed in that segment," said Owen Tripp, who co-founded Grand Rounds in 2012 on the premise of giving employees of self-insured companies medical opinions through a curated network of professionals.
Today, the company counts 6 million members, but he said that's still a fraction of the 105 million Americans covered under self-insured health plans.
In those kinds of plans, employers pay for their workers' healthcare needs directly, rather than buying health insurance to cover the cost. Insurance companies still play a role in processing the claims and negotiating rates with doctors and hospitals.
Carlyle, a large private-equity firm with a suite of other healthcare investments, including primary care provider One Medical and MedRisk, a managed-care organization dedicated to the rehabilitation of injured workers, is now helping to finance Grand Rounds' operations.
"Our capital is really meant to be able to continue to fund what the company is already doing and maybe accelerate growth," said Robert Schmidt, the lead Carlyle investor who is joining the company's board of directors.
"The company today actually loses money, so it does need capital to continue to just keep doing what it's doing."
Not unlike other high-growth businesses, Grand Rounds is spending more than its revenues, but Schmidt was bullish on its long-term prospects and believes the firm's investment will supercharge its growth into the business of helping companies and their employees navigate the healthcare system.
"As COVID hit and these employers, to take care of digital and work from home workforces across the country, they all had unique situations and needs pop up."
Read more: Meet Kewsong Lee, the private-equity exec who's now running the show solo at Carlyle. 20 insiders lay out why the move signals a big transformation at the $221 billion firm.
Grand Rounds joins other healthcare companies within Carlyle's portfolio
The company fits well within Carlyle's healthcare portfolio, which has invested more than $15 billion into companies since its inception, from full control deals to minority stakes.
Sinking growth equity into companies is less common for Carlyle and while it doesn't have a whole division devoted to the asset class like some of its competitors, it's often considered smaller, non-control deals. This has included its investment in the AI-powered interviewing company, Hirevue; Golden Goose, the luxury sneaker brand; as well as Dr. Dre's Beats. It has since exited the latter two.
In the healthcare sector, the firm similarly plunked $350 million into One Medical in 2018, a company that it helped take public in January, raising $245 million in the IPO, its valuation surging to $2.7 billion.
"It's very much down the fairway of what we're doing," said Schmidt of the Grand Rounds investment.
"I think both growth equity investing for Carlyle as a firm and digital healthcare — and where tech-enabled models within healthcare are going — is very much a focus for our team."
Read more: We talked to a dozen insiders about Jon Korngold, the investor driving Blackstone's big push into backing fast-growing companies like Bumble
Carlyle's 'aggressive pursuit' led to the deal
Tripp, the Grand Rounds CEO, said that the company ended up partnering with Carlyle because the firm's executives had done their homework on its services, and had pursued Grand Rounds for years, following his management team at industry conferences and setting up meetings.
But it wasn't until after Grand Rounds announced its intention to raise a round of funding this spring that talks with its executives accelerated.
Carlyle had put together a presentation on Grand Rounds that impressed Tripp. It came with hundreds of slides and exhibits and contained insights about the firm's customers after Carlyle had called many of them, asking about the quality of Grand Rounds' services.
"I remember getting calls from current and former customers saying, 'Hey, look, there's some people who are running market research studies and they really want to dig in, not just what you're doing for us as a company, but understand the impact you're making to the member.'"
They also requested to see demos of its product and asked questions about how it penetrated its customer base and achieved its favorable "net promoter score," a metric used to measure customer satisfaction, Tripp recalls.
"It was their outreach and dogged pursuit that led to this deal happening," said Tripp.
Deal negotiation over Zoom calls wasn't ideal
If it was one thing Tripp could have changed throughout the process, it's that deal talks ensued virtually rather than in-person — a dynamic he said made him and Carlyle "uncomfortable" because they both value relationships when consummating such a large deal.
"This is pretty remarkable to do a round of this size exclusively over Zoom," he said.
But both Tripp and Schmidt — who did not know each other before recent deal talks — paid their respects for one another.
Tripp called Schmidt a mix of low ego and high expertise. Schmidt praised Tripp's tendency to keep asking customers what more Grand Rounds can do for them.
Personalities aside, Schmidt said that he believed in the sector — one that industry consultants say is heating up, given the push to remote working.
"I believe we're in earlier innings in terms of where technology is going to continue to innovate within healthcare and will continue to disrupt old business models," said Schmidt.
"And so, as an investor within healthcare, technology-enabled businesses and digital companies in particular provide some really interesting opportunities — because their room to grow is so large."
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