If you’re looking to make a profit, investing in ancillary businesses might be right for you.
Many investors are interested in ancillary businesses for various reasons. Whether it’s a growing private equity sector or increased competition from large U.S. corporations, these types of companies can deliver solid returns. In this article, you’ll discover three reasons to invest in these businesses:
Investing in niche ancillary providers
Private equity firms have increasingly been interested in niche ancillary providers. These companies are increasingly focused on meeting the needs of medical providers by offering value-added services. In addition to being a lucrative business opportunity, these companies may also be in demand in a particular area. There are some reasons why these companies are attractive to private equity investors. Many are focused on areas where niche ancillary providers are currently experiencing strong growth. Similar to this, merchants dealing wholesale cannabis seeds and other types of products that fall to the same category may undergo the growth.
Behavioral health and substance abuse treatment operations have recently received significant investor interest. This is partly due to governmental regulations that limit payors’ ability to use onerous standards. Another driver is significant revenue and profit margins. Regulatory barriers for behavioral health providers have also increased their attractiveness. But the ancillary providers themselves remain the most profitable, so investing in them is an excellent way to increase your returns. However, investors should be wary of companies that have a long history of losing money.
Increasing interest from private equity investors
As interest rates rise, the private equity industry will have to adapt to stay competitive. One exciting trend is the growing length of investment horizons. Moving towards a seven-year holding period would be an unprecedented change for the industry. Currently, the industry focuses almost exclusively on a five-year holding period, which requires turnaround results to be visible within four years. Increasing interest from private equity investors in ancillary businesses will require some savvy investors to identify these companies early.
In the US, private equity players are finding ample opportunities in the insurance industry. In recent years, private equity firms have reaped impressive returns, benefiting from multiple arbitrages and the heavily fragmented insurance brokerage industry. PE-backed distribution technology providers have also enjoyed impressive growth and stable cash flows. In the insurance services space, investors have created value by acquiring a dominant position in the claims-management space and consolidating HRIS and benefits administration services.
Competition from large U.S. corporations
The current trend in the U.S. economy is toward corporate consolidation. As a result, markups have tripled and fewer small companies are competing. This has resulted in higher prices for consumers, and families are paying more for necessities. The Obama administration is attempting to combat this trend by encouraging competition among large U.S. corporations. In particular, President Biden is promoting competition through his Executive Order, which establishes a whole-government effort to promote competition. Among the 72 initiatives laid out in the Order are those aimed at reducing non-compete agreements and limiting the number of unnecessary occupational licensing requirements.
However, European policymakers worry that U.S. companies are encroaching on their domestic markets. European companies have become largely dependent on European markets, and the European Union’s hard stance on antitrust laws has created major problems for U.S. business interests in Europe’s massive digital market. Business-to-consumer e-commerce in the region is expected to reach $850 billion this year.
Cost of ancillary products and services
Ancillary businesses are a great way for companies to increase their revenue without having to sell additional products. By adding ancillary products and services, they can weather sales declines in their core products better and generate steady earnings growth. A good example of an ancillary business is a laboratory. The lab can generate revenue if the physician does not need to perform diagnostic tests.
Hospitals and healthcare systems have various types of ancillary businesses. Some of these services provide essential services to hospitals and clinics, while others are ancillary products and services. Hospitals and healthcare organizations invest in a wide variety of products and services, ranging from car washes to national vending programs. These ancillary businesses often provide valuable additional revenue and can even become the main source of revenue for a company.
Profitability of ancillary products and services
While the healthcare industry remains one of the most attractive sectors to invest in, there are ancillary products and services that are equally as lucrative. Examples include laboratory services in physician offices. In this article, we will take a look at some of the most profitable niche ancillary providers and discuss how you can invest in them. Aside from being profitable, these businesses may also provide needed services to the healthcare industry.