The interview below is part of a series from McGuireWoods that features interviews with impressive independent sponsors as part of our ongoing commitment to the independent sponsor community. To recommend an independent sponsor for a future interview, email Jon Finger at email@example.com.
Q: Why did you decide to become an independent sponsor?
I chose to pursue the independent sponsor model as a means to build
businesses instead of portfolios. I launched Seven Hills after founding and
operating a dermatology management services organization. I knew I didn't
want to run another company from the chief executive officer's chair and
also did not want to return to a traditional private equity firm. I felt
the independent sponsor model was a great way for me to build businesses
without the typical transaction constraints of a traditional private equity
Q: How long have you been operating as an independent sponsor and how
long did it take you to close your first deal?
Seven Hills was launched in earnest in 2017 after I sold my dermatology
company. I spent 2017 developing conviction around certain industry niches,
establishing best practices and building out a pipeline. We closed two
platform acquisitions in 2018 that were a direct result of our targeted
healthcare services approach.
We attribute this success to the fact that we were solely focused on
healthcare. This fundamentally narrowed how many partnerships we
considered. In addition, when we went to different partners, they knew we
were only looking at healthcare, as opposed to just trying to complete a
deal. We had a view going in of what we thought the ideal partnership would
be for us. This permitted us to easily inform people about what we were and
were not trying to accomplish. At the same time, we could also explain how
we think about creating value and ask if that aligned with how a
prospective partner thought about value. This further demonstrated that we
were going to approach the partnership differently than a generalist
Q: What are some of the most impactful reasons you think the
independent sponsor model has grown so robustly and what changes do you
envision in the future?
I believe the growth is driven by the flexibility the model provides for
companies, capital providers and, of course, sponsors. The market will
continue to grow, but sponsors must provide a defensible value proposition
to participate in the growth.
I think a lot of people know there is capital interested in the independent
sponsor asset class. As a result, some of the deals being put together do
not necessarily have unique differentiators that ensure the sponsor is
deserving of the economics in the current market. Sponsors need to be
careful about just grabbing a deal and shopping it. I worry in this market
about new entrants taking such an approach. I believe sponsors need to look
at the companies and the capital providers and say, "Here's what we are
going to do, here's why we play an important role and here's why we should
be part of these transactions."
The capital is interested in these transactions because right now, the
market is differentiated and beneficial. If the market is no longer
differentiated and beneficial, then the capital will not stick around.
Q: What are the most common misconceptions about the independent
There are several, but to me the most common is that sponsors want to
transform into private equity firms. Many of us chose this path to pursue
differentiated opportunities. Deviating from the model would not allow for
the same type of flexibility.
Not everyone wants to be a middle market or upper middle market private
equity investor. People like me really do want to focus on building great
businesses. You can build great businesses a lot of different ways. You do
not necessarily need to do them through a traditional fund structure, which
impacts the ways you can build businesses. This includes putting
constraints on matters such as people and time duration. If you do things
under the independent sponsor model, you will have a lot more flexibility.
I've invested as part of traditional, bigger funds and certainly liked
aspects of that model. However, through Seven Hills, we've now essentially
built three companies and demonstrated that we can operate outside of the
fund construct. Not investing out of a traditional vehicle hasn't hampered
our ability to pursue transactions. Defensible ideals and strong companies
will attract capital.
Q: Recognizing every deal is different, what are some of the most
important considerations for you when choosing a capital partner for a
Ultimately, it comes down to culture and alignment, but I believe any
sponsor should ensure they are running the same value creation playbook as
their partners. For us, we are very inquisitive on the acquisition front,
which requires us to invest in people, processes and systems in the first
year of ownership. Additionally, when choosing a capital partner, we always
ensure they share our same views on value creation throughout the
In addition, the fact that these deals are smaller, with fewer
institutional processes in place, means that you can't just flip a switch
and everything will be humming on day one. These companies require
investments, patience and a lot of hard work. We need a capital partner
willing to get into a boat with us and row; a partner committed to taking a
slow and steady approach and doing so together.
About Matthew Pettit
Matthew Pettit founded Seven Hills Capital to bring a unique, long-term operating perspective to healthcare services investing.
Prior to forming Seven Hills, Pettit founded Ascend Dermatology with the goal of creating an organization that provided world-class, compassionate care to dermatology patients and offered a unique succession planning vehicle for dermatology practice owners. He served as the chief executive officer of Ascend, where he oversaw operations, the construction of a corporate team and associated back-office support center and all financial functions. Additionally, Pettit led business development sourcing and the execution of several add-on acquisitions. Ascend merged into Forefront Dermatology in 2016.
Pettit developed his passion for healthcare after being involved with several successful ventures as an investor and adviser while at Beecken Petty O'Keefe and Co. and Piper Jaffray. He worked with companies in the healthcare information technology, practice management, staffing, infusion and home health sectors. Pettit has also made personal investments in the healthcare space, targeting primarily outpatient services and personal wellness. In conjunction with his personal investing, he served on the board of directors of LYFE Kitchen. Pettit also currently serves on the board of The VersiCare Group and Reliable Medical Supply.
He received his Master of Business Administration from the University of Chicago and his Master of Accounting and Bachelor of Science with honors from The Ohio State University.
To contact Matthew Pettit, email