Justin Ishbia is the Founder and Managing Partner of one of the nation’s best performing private equity firms, Shore Capital Partners (“Shore”). Since the firm’s inception in 2009, Justin has grown Shore from a team of 4 to a team of, and currently manages over $6 billion in Regulatory Assets Under Management across more than 50 platforms representing 800+ acquired companies. Shore has helped “micro-cap” companies grow bigger, stronger, and faster through thoughtful investments in people, process, and systems. Justin received a J.D. from Vanderbilt University Law School, has a certificate of Law and Business from the Vanderbilt Owen Graduate School of Management, and earned his B.A. from Michigan State University.

The Pulse: Can you introduce your background and how you co-founded Shore Capital Partners?

Justin Ishbia: Grateful to have this opportunity. My name is Justin Ishbia, and I founded my current company, Shore Capital, in 2009. Before this, I went to law school at Vanderbilt Law School and earned my CPA license.  After law school, I worked at Kirkland & Ellis, a law firm that has a large private equity practice. I was in the private equity group for about three years before joining one of our clients, a private equity firm. After two years there, I founded Shore Capital in 2009.

The Pulse: What is your founding journey like?

JI: We didn’t have much money to start with, and our first office was just over 1200 square feet. The first thing we did was finding a great deal before fundraising. Once we did get a deal under letter of intent, we raised $10 million for a single purpose vehicle to invest in one industry: home infusion. Our approach is very thematic. Over the next three years, we completed four incremental single purpose vehicles in anatomic pathology, physical therapy, urgent care, and autism therapy. We are very focused on themes and tend to pick a niche within healthcare that has great long-term growth potential. We then recruited a board member with decades of appropriate expertise. Warren Buffett once said that when a great management team meets a bad industry, the industry maintains reputation. When thinking about where to invest, we have always thought about the industry first, then focused on the team. In the early days, it was just me and my partners, Ryan Kelley, Mike Cooper, and John Hennegan. Today, we have grown the team to over 120 full-time team members, of which about half are our investment professionals and half are our operations team members. We have over $3 billion of committed capital, use a top-down interview approach, and focus on microcap investing on platforms with, at investment, under $10 million EBITDA.

The Pulse: You mentioned Shore Capital’s thematic, research-driven approach. What are some interesting healthcare investment theses you have observed lately? 

JI: Historically, healthcare has been several years behind the rest of the economy in terms of technology. There are a couple of reasons for that. It’s one thing to take a risk on your phone or your watch but another on your heart or your life. However, this technology gap is becoming narrower. We think the biggest trend in healthcare today is the consumerism of healthcare. Especially post-COVID, people have become accustomed to getting the service they want, at the time they want it, and through their phones with little conversation.

Another sign of the customer mindset shift is the cost of healthcare. A decade ago, patients were less price sensitive. There were fewer insurance plan options, and their employers were effectively the mechanism they paid through. Today, people care more about cost and transparency. It would be very odd if you go to Burger King, ask what the cost of a burger is, and get a response of “I’m not sure”. That has been the case in healthcare for a long time. We believe that those who provide most transparency and clarity will attract consumers.

Consumers demand convenience through technology advancement. They look for capabilities that allow them to book appointments online, check real-time updates, understand their costs, and receive a high-quality service in a very efficient manner without compromising quality.  We also believe that all clinicians want to work at the top of their license. So part of our focus is creating an environment that adds talented people to the care delivery team, and allows each of them to focus on things that only they can do. For example, an ophthalmologist wants to perform cataract surgery over the routine follow-up appointment post operation.  During COVID-19, we learned to be more efficient and use technology for routine post-op care, allowing for virtual meetings in certain situations with low risk and non-physician involvement.  We believe that trend will continue, and consumers and payers will adapt to a triage model where non-physicians will evaluate health issues and move them up the chain to physicians based on clinical needs. We always say, “Good Medicine is Good Business.” We really strive to focus on high quality medicine, which is accomplished by having happy clinicians working at the top of their license.

The Pulse: What are some of your investment strategies?

JI: Here at Shore Capital, we love partnering with physicians or other clinicians, such as dentists or veterinarians. We also love investing in industries where the demand outstrips the supply. It can be a complicated and unfortunate situation, like the opioid space which is one of the worst addictions of our generation. We believe if we build a great company that can service the needs of many patients at scale, we can become a critical member of the ecosystem and a force for positive change.

The Pulse: Currently, there have been a lot of talks about how technology and automation can relieve labor shortage. How do you feel about this perspective of technology’s role in healthcare?

JI: Technology will have a part in relieving this burden but won’t be the only one. For example, we own urgent care businesses. Out of all 100 locations, some are very busy on a Tuesday, and some are not busy at all. Technology can help triage and allocate medical resources. Remote and virtual care is another use case. One caveat is that it won’t be 100% for everything: it’s a complement. Healthcare is going to be a hybrid model and it’s not an either or. There are certain types of services where virtual care became prevalent, including the mental health space during COVID-19. Another area of technology use that has been promising is assisting administrative tasks, such as appointment booking.

The Pulse: There have been discussions of the economic downturn and how it has impacted investment firms. How has Shore Capital changed its strategy and prepared for this, if at all?

JI: As an organization, we believe a recession started last year and we’ve been in recession mode for about a year as of now. We have been acknowledging, closely monitoring, and aligning with our CEOs to come up with thorough responses to the recession. We put out a paper in April of last year that encouraged our CEOs to be ready and change behaviors accordingly. We asked every CEO in all 41 companies we own to identify their internal operating triggers. For example, a trigger for a medical device company can be to have incoming orders “X” percent below its seasonally adjusted average orders for two months in a row.  Once the trigger has been tripped, we believe it is time to execute rather than to stop and figure out what to do.  Each of our management teams have their own “recession case” scenarios and, in the event the triggers are set off, we start executing on the plan so we can go on offense during the recession. We have a few businesses that have already benefited from this system and saved tens of millions of dollars this year by hedging last April when the cost of capital wasn’t as clear as it is today.

The Pulse: What advice do you have to graduating Wharton MBAs looking for opportunities in healthcare investing?

JI: I believe that healthcare is one of the most attractive spaces to invest in. One of the beauties of healthcare, unfortunately or fortunately, is that the demand is always there and relatively stable. I can give you a good estimate of the number of a certain procedure next year with great data on 350 million Americans. For students who want to work at a portfolio company or operate a healthcare company, my advice would be very simple: identify a subsector that you think is growing, whether that is behavioral health, mental health, opioid addiction, veterinary, or any others. These are industry trends that you can quickly find out about. The second piece of advice is to pick a subsector you are passionate about. Lastly, research the CEO of the business. If this CEO is better than average and you enter a growing industry you’re passionate about, the business will definitely outgrow the pace of the industry.

For students interested in healthcare investing, I would add to look at the size of investments you want to make. I’m biased, but my personal belief is that there are only a couple dozen businesses per year over $100 million EBITDA in healthcare, so it’d be more competitive and an auction process. The middle market is an opportunity. I also think specialists in the investing space have competitive advantages over generalists. It’s most important to spend time thinking about which space within healthcare investing is best for you.

Interviewed by Yuntian Han, January 2023

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On Feb 16-17, 2023, Wharton is excited to feature more expert perspectives at our annual Wharton Health Care Business Conference. This year’s theme is ‘The Empowered Health Care Consumer’. Conference details and tickets are available here.