In 2021, private equity firms extracted a record-breaking $34.9 billion in debt-funded dividends from companies they own, including dividends from US healthcare companies.
Dividend recapitalizations are transactions by which private equity firms load debt onto companies they own to give themselves cash payouts. The tactic has been widely criticized by both supporters and skeptics of the private equity model for needlessly saddling companies with debt to extract capital without making substantive operating improvements, putting those companies at risk for restructuring, bankruptcy, or cost cutting to make up the interest payments and pay off debt. Despite concerns, private equity firms have continued the practice with impunity.
S&P reports that as of December 2021, dividend recapitalizations overall “rocketed to an all-time high of $81.7 billion in 2021, more than double the $35 billion output from 2020.” Dividend recapitalization deals often include some amount of debt used for other purposes, such as refinancing existing debt or financing new acquisitions. However, excluding all other uses of leverage in dividend recap deals, private equity firms extracted a record $34.9 billion from companies they own.
Despite the ongoing COVID-19 pandemic and the challenges it has created for the healthcare system, the Private Equity Stakeholder Project has found 28 debt-funded dividends by private-equity-owned healthcare companies in 2021 (see below list). Because dividend recapitalization deals do not need to be disclosed, the number of healthcare deals that occurred in 2021 is likely higher.
It is troubling that private equity firms would undertake dividend recapitalizations at the health care companies they own, which often depend heavily on government funding and where these kinds of aggressive financial policies may put critical health care infrastructure at risk. In some cases, private equity firms have siphoned debt-funded dividends from companies that have profound quality and safety concerns (e.g. The Mentor Network owned by Centerbridge Capital and Vistria Group) or have recently collected COVID-19 relief money (e.g. DuPage Medical Group, owned by Ares Management).
Below are some examples of debt-funded dividends at private-equity-owned healthcare companies in 2021. A complete list is available at the end.
The Mentor Network (aka Sevita) – Centerbridge Partners, Vistria Group
The Mentor Network, owned by private equity firms Centerbridge Partners and Vistria Group, is one of the largest for-profit foster care companies in the US. It also provides residential and community services to children and adults with intellectual and developmental disabilities (I/DD). Over the last two decades, Mentor has faced numerous allegations of widespread abuse, neglect, and deaths at its foster care and residential programs.
Despite ongoing regulatory scrutiny for quality and safety concerns at Mentor, Centerbridge Capital and the Vistria Group have collected almost half a billion dollars in debt-funded dividends from the company over the course of their two-year ownership.
In February 2021, Centerbridge and Vistria took out debt on The Mentor Network in part to pay themselves a $375 million dividend. The new debt brought Mentor’s debt/EBITDA ratio to about 6.5x. Centerbridge and Vistria had also taken a $100 million debt-funded dividend in October 2019, just six months after they acquired Mentor.
In September 2021, The Mentor Network changed its name to Sevita.
CHG Healthcare – Leonard Green & Partners, Ares Management
CHG Healthcare is a healthcare staffing company owned by private equity firms Leonard Green & Partners and Ares Management. In September 2021 the firms took a $560 million debt-funded dividend from CHG. It is the fourth time Leonard Green and Ares have collected a debt-funded dividend from CHG.
Leonard Green and Ares have aggressively siphoned money from CHG through dividend recapitalizations over the years; since they acquired CHG in 2012, the private equity firms have paid themselves more than $978 million in debt-funded dividends:
- June 2013: CHG paid owners a $165 million special dividend.
- In May 2016: CHG issued $1.37 billion in new debt part to pay Leonard Green and Ares a $525 million dividend.
- November 2016: CHG issued additional debt to pay another $288 million dividend.
- September 2021: CHG paid Leonard Green and Ares a $560 million dividend.
U.S. Anesthesia Partners – Welsh Carson Anderson & Stowe
U.S. Anesthesia Partners, Inc. (USAP) is a physicians’ group owned by private equity firms Welsh Carson Anderson & Stowe (WCAS), Berkshire Partners, the Heritage Group, and the Government of Singapore sovereign wealth fund. In September 2021 the private equity ownership group paid itself a $400 million debt-funded dividend. According to Moody’s, USAP’s debt/EBITDA is expected to remain in the 6.0-7.5x debt/EBITDA range over the next year.
This is not the first time the WCAS-led ownership group has pulled money out of USAP; in 2018 USAP paid its owners a $369 million debt-funded dividend, which Moody’s rated credit negative because it would increase leverage and decrease liquidity.
DuPage Medical Group (aka Duly Health & Care) – Ares Management
In early 2021 private equity firm Ares Management collected an over $200 million debt-funded dividend from its physician practice DuPage Medical Group (DPMG). The dividend came after DuPage Medical Group collected nearly $80 million in CARES Act aid in 2020.
Credit rating agency Moody’s Investor Service rated the dividend recapitalization deal credit negative, noting that “it points to the aggressive nature of DuPage’s financial policies, a key governance issue. DuPage will be meaningfully reducing its cash balance to fund the dividend. Combined with higher gross financial leverage, this will leave DuPage more weakly positioned to absorb any unexpected operating setback or incremental debt. Additionally, Moody’s believes DuPage’s aggressive policies pose social risks as key customer relations stakeholders include patients, payors and government entities.”
In September 2021, DuPage Medical Group changed its name to Duly Health & Care.
Partial List of 2021 Healthcare Dividend Recapitalization Deals
|Company||Private Equity Firm||Type||Date|
|CareStream Dental||Clayton Dubilier & Rice, Care Capital||Dental||Oct-21|
|Bridgepoint Healthcare Louisiana||Silver Point Capital||Acute care hospitals||Oct-21|
|MGC Diagnostics Corporation||Altus Capital Partners||Medical devices||Sep-21|
|U.S. Anesthesia Partners||Welsh Carson Anderson & Stowe, Berkshire Partners, GIC, LP, and Heritage Group||Physicians’ practice||Sep-21|
|Mitchell International||Health insurance||Sep-21|
|CHG Healthcare||Leonard Green & Partners, Ares Management, Government of Singapore Investment Corporation (GIC)||Healthcare staffing||Sep-21|
|Finvi (fka Ontario Systems)||New Mountain Capital||Revenue cycle management||Aug-21|
|Smile Brands||Gryphon Investors||Dental||Aug-21|
Intelligent Medical Objects
|Warburg Pincus||Medical records systems||Aug-21|
|XIFIN||Avista Capital Partners, Constitution Capital Partners||Health tech||Jul-21|
|Experity||Warburg Pincus||Health tech||Jul-21|
|Erickson Living||Redwood Capital Investments||Senior living, assisted living||Jun-21|
|SpecialtyCare||Kohlberg & Company||Neurodiagnostic services||Jun-21|
|Elite Body Sculpture||Burch Creative Capital, Vesey Street Capital Partners||Cosmetic surgery||May-21|
|Worldwide Clinical Trials||The Jordan Company||Drug development||Apr-21|
|Milan Laser Holdings||Leonard Green & Partners||Cosmetic surgery||Apr-21|
|Eating Recovery Center||CCMP Capital Advisors||Behavioral health||Apr-21|
|OB Hospitalist Group||Gryphon Investors, Athyrium Capital Management||Women’s health||Apr-21|
|Virgin Pulse||Marlin Equity Partners||Health tech||Mar-21|
|Home Care Assistance||Summit Partners||Home health||Mar-21|
|DuPage Medical Group (aka Duly Health and Care)||Ares Management||Physicians’ practice||Mar-21|
|Soliant||Olympus Partners||Healthcare staffing||Mar-21|
|Convey Health Solutions||TPG Capital||Healthcare consulting||Feb-21|
|The Mentor Network (aka Sevita)||Centerbridge Partners, Vistria Group||Behavioral health||Feb-21|
|Jadex (fka Process Solutions)||One Rock Capital||Medical devices||Feb-21|
|Ensemble Health Partners||Golden Gate Capital||Revenue cycle management||Feb-21|
|Compassus||Towerbrook Capital Partners, Ascension Health||Hospice, home health||Feb-21|
 “Moody’s affirms National Mentor’s B2 CFR; outlook to negative,” Moody’s Investor Service, February 9, 2021. https://www.moodys.com/research/Moodys-affirms-National-Mentors-B2-CFR-outlook-to-negative–PR_439884
 “Moody’s downgrades National MENTOR Holdings, Inc.’s first lien credit facilities to B2 from B1; B2 CFR affirmed; outlook is stable,” Moody’s Investor Service, January 27, 2020. https://www.moodys.com/research/Moodys-downgrades-National-MENTOR-Holdings-Incs-first-lien-credit-facilities–PR_417670