Illinois- and Wisconsin-based Advocate Aurora health system has a new investment arm and recently made some of its first bets in healthcare.
Advocate Aurora Enterprises (AAE), a wholly owned subsidiary of Advocate Aurora Health Inc., announced last week it acquired Maryland-based senior home care company Senior Helpers in a deal worth a reported $180 million.
The deal came just days after the group led a $25 million funding round in a telenutrition platform called Foodsmart.
AAE was created to focus on the consumer health and wellness space, Advocate Aurora Enterprises President Scott Powder told Fierce Healthcare.
"We realize there are so many other things beyond great medical care that impact a person’s health—everything from their genetics to their lifestyle and behaviors and what we call social determinants," Powder said. "Often, those things impact a person’s overall health even more than medical care. We said if we are going to fulfill our overall purpose of helping people live well, this idea of participating in and having a much bigger footprint in the consumer health and wellness space is very much aligned with that strategy."
Here are three top details from our conversation about how Powder described Advocate Aurora's investment ambitions.
1. They're focusing investments in three sectors. While the broader goal is to invest in companies in the consumer wellness space, Powder said AAE is targeting investments in three sectors to start: companies geared toward independent aging, parenthood and improving personal performance through the integration of mind, body and nutrition, he said.
"These are sectors where we think there is a large unmet need, and we think there’s a lot of growth opportunity," Powder said. "We also think that the core business—Advocate Aurora—has some capabilities that can help us be successful in these particular categories."
While it's not a prerequisite, strong targets for investment include companies Advocate Aurora might become a customer of.
"All other things being equal, we would look to invest in, acquire, do a transaction with a company where there are synergy or cross-pollination opportunities with our core business," Powder said.
How entrepreneurs and companies get AAE's attention?
Powder said they've been able to get early leads and connections so far through Advocate Aurora's corporate venture arm. But as travel opens up again post-pandemic, he expects his team will be heading to more venues across the country to meet with companies. He also suggested they could find AAE online.
2. They are focused on more established companies. While Powder said AAE is looking to keep the parameters of potential investments flexible, its strategy favors more established players over seed-stage or pre-revenue companies.
"With Foodsmart, they've been around for 10 years, they've had four previous rounds of investment before us and we like where they're at in terms of, they're still a rapid, high-growth company, but they've got a very solid customer base with a lot of growth ahead of them."
Similarly, in the deal with Senior Helpers, AAE ssees a great deal of upward growth potential, but the company is more mature.
AAE is not set up to have a set fund of money to spend, Powder said. He declined to offer specifics on how much funding he has to work with and said it could change year to year.
And while there are aspects that are similar to venture capital in the sense that the company is looking to invest and have equity ownership in various companies, Powder said there is a key difference to AAE's strategy.
"Venture capital or private equity are mainly financial investors seeking a return on invested capital in a defined period of time for their investors," Powder said. "While clearly, part of what we're trying to do is contribute to the financial health of Advocate Aurora Health, we have a strategic goal around investing in these companies for the long term and are not necessarily looking to exit, because again, we're trying to fulfill that purpose of helping people live well through these investments."
3. They are looking to get into the digital health space. The core business of care delivery is a very challenging business, Powder said. For instance, a huge amount of revenue of any health system is set and essentially capped by Medicare and Medicaid.
In many areas of healthcare, utilization is dropping.
"Technology is moving more and more care outside of the traditional brick-and-mortar assets that we've assembled over the years," Powder said. "It's a very challenging business to be in, and we're looking to invest in things and participate and partner with companies that are less asset-intensive. We're focusing on digital technology as a mechanism to deliver care and information and services as well as lighter assets like what we're doing with Senior Helpers, which is a people-based business. We're moving more and more care into the home."
It will take time to build the portfolio, but Powder said the goal for the investments is ultimately contribute to the bottom line while aligning with the broader goal, he said.
"This is ultimately about serving our ultimate purpose of helping people live well. So we're looking to participate much more meaningfully in the consumer health and wellness space and that's what our mission is. We're not just trying to generate a financial return."