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Two Sigma just snapped up a home-healthcare startup, and a partner laid out how it plans to use its quant background to grow the business

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  • Quant hedge fund Two Sigma just made its third impact investment.
  • The firm backed one of Texas's largest pediatric health providers, Circle of Care.
  • A partner behind the deal told Insider about how it came together and the firm's expansion plans.
  • See more stories on Insider's business page.

$58 billion quant hedge fund Two Sigma just scooped up a business in the booming in-home healthcare segment.

The firm's impact investing unit has acquired San Antonio, TX-based Circle of Care, a provider of in-home pediatric therapy services. A spokesperson for Two Sigma declined to share the amount invested or the company's valuation.

Investment is pouring into the in-home healthcare space as providers search for new sources of profitability. So far this year 25 M&A deals have closed in the sector in the US, after 30 such deals got done in 2020 amounting to nearly $3.5 billion, per transaction data provider Dealogic.

Two Sigma Impact's strategy is predicated on the idea that improving worker satisfaction and hiring in growing sectors drive value.  It quickly identified the sector as a space that fit into its thesis as providers have been struggling to find enough qualified pediatric therapists to keep up with surging demand, Geoff Lieberthal, the Two Sigma partner who co-led the deal, told Insider. 

The Two Sigma Impact team looked for in-home health opportunities in Texas because of its favorable insurance reimbursement policies and competitive landscape. A broker connected the team to Circle of Care, which provides speech, occupational and physical therapy for children under 20, including for those on the autism spectrum, a growing segment of the population, Lieberthal said.

Two Sigma intends to help Circle of Care expand from its existing 3,000 patients in Texas to a national footprint. Circle of Care, founded in 2007, employed over 275 licensed therapists as of July 2021. 

Two Sigma Impact backs two types of companies — employers and enablers. The former, like Circle of Care, create jobs, Lieberthal said. The latter, like the unit's first investment in for-profit college Penn Foster, help better prepare the workforce for jobs.

Two Sigma Impact surveys employees at companies it's looking to back to gauge their job satisfaction and identify potential areas for investment. In the in-home healthcare space, Lieberthal said, employee turnover is very high. Two Sigma hopes to help Circle of Care differentiate itself from competitors by bolstering retention. 

The firm then leverages its resources and background in quantitative data analytics to drive operational improvements at its portfolio companies. In the healthcare space, Lieberthal said data science is helping Two Sigma understand which markets to prioritize and compile databases of qualified professionals to more effectively source talent.

"If there's room for improvement — and there is at Circle of Care, and frankly, there is in every business that we first look at — that's okay. It's not like we only invest in a business if it's perfect in everything, but it does give us an analytical baseline and insight into where we need to make investments," Lieberthal said.

Two Sigma Impact was reportedly raising money for a new fund focused on impacting workers in April this year, sources told the Wall Street Journal. At that time, it expected to raise some $425 million in the first close, with an ultimate goal of $750 million, per the Journal. 

Circle of Care is its third investment since its August 2020 launch.  

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