Private Equity Health Care Acquisitions – December 2020

In light of the growing private equity acquisitions of health care companies and the risks associated with private equity ownership of health care providers, the Private Equity Stakeholder Project will be tracking private equity-backed health care acquisitions. Below is a list of private equity health care buyouts and add-on acquisitions completed during December 2020. We will continue to track acquisitions on a monthly basis.

See November 2020 acquisitions here

Pinnacle GI Partners- H.I.G. Capital

H.I.G. Capital has partnered with the Center for Digestive Health to create Pinnacle GI Partners, a new digestive health investment platform in Michigan.[i]

H.I.G. has been an active acquirer of health care companies lately; in October H.I.G. acquired St. Croix Hospice, a provider of hospice services with 35 branches in six Midwestern states.

H.I.G.’s spate of recent health care acquisitions raise concern given the company’s recent track record with health care companies. For example, H.I.G. is currently facing a Federal lawsuit for billing fraud allegedly committed by its mental health company South Bay Community Services, a subsidiary of Community Intervention Services. The mental health company settled in 2018, but litigation against H.I.G. itself remains ongoing. Private Equity Stakeholder Project has written about the litigation against H.I.G. and its mental health company here.

H.I.G. also owns prison health company Wellpath, one of the largest healthcare companies serving jails, prisons, detentios facilities, and state psychiatric hospitals. Over the last decade Wellpath subsidiaries have been sued over a thousand times for allegations including understaffing and inadequate staff training that lead to negligence and untimely care, in some cases resulting in patient death.[ii]

Midwest Dental – Gryphon Investors

Smile Brands, which is owned by private equity firm Gryphon Investors, has acquired Midwest Dental from private equity firm FFL Partners. Both Smile Brands and Midwest Dental are dental services organizations (DSOs), which provide management services to dental practices.[iii]

Gryphon Investors acquired Smile Brands in August 2016 from another private equity firm.[iv] It is one of the largest DSOs in the U.S., with 420 affiliated locations across 17 states in the U.S. The acquisition of Midwest Dental brings the combined companies’ total employees to 8,000.[v]

Gryphon reportedly tried to sell Smile Brands in late 2019 but struggled to find a buyer as of January 2020.[vi] The year before, Gryphon had completed a dividend recapitalization of Smile Brands, adding $300 million in debt to pay itself a dividend.[vii]

Gryphon’s acquisition of Midwest Dental via Smile Brands represents another step in private equity’s consolidation of the dental services industry. Currently, nine out of the top ten DSOs in the US are owned by private equity firms and investor interest has shown no sign of abating.[viii] In addition to Gryphon Investors’/ Smile Brands’ acquisition of Midwest Dental, December saw two other DSO acquisitions: Allied Dental, owned by Riverside Partners, merged with TriSpan-backed PG Dental Holdings[ix] and Aces Dental was acquired by Absolute Dental Management, backed by Ares Capital and Beecken Petty O’Keefe & Company.[x]

Add-On Acquisitions

PE Buyouts/Investments

[i]https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/h-i-g-growth-partners-invests-in-pinnacle-gi-partners-61562359

[ii]https://pestakeholder.org/report/hig-capitals-and-wellpaths-correctional-healthcare-investment-risks/

[iii]https://www.prnewswire.com/news-releases/gryphons-smile-brands-completes-acquisition-of-midwest-dental-301183441.html

[iv]https://www.wsj.com/articles/gryphon-investors-acquires-smile-brands-from-welsh-carson-1471553274

[v]https://www.prnewswire.com/news-releases/gryphons-smile-brands-completes-acquisition-of-midwest-dental-301183441.html

[vi]https://webcache.googleusercontent.com/search?q=cache:8V8048zBDeYJ:https://www.mergermarket.com/info/smile-brands-auction-struggles-sources-say+&cd=4&hl=en&ct=clnk&gl=us

[vii] Pitchbook, accessed December 2020.

[viii] According to Becker’s Dental and DSO Review, the top ten DSOs are Heartland Dental (KKR), Aspen Dental (Ares Management, Leonard Green & Partners), Pacific Dental Services, Smile Brands (Gryphon Investors), American Dental Partners (JLL Partners), Great Expressions Dental Centers (Roark Capital, Ares Capital), Dental Care Alliance (Harvest Partners, Crescent Capital), Affordable Dentures & Implants (Berkshire Partners, Partners Group), Western Dental (New Mountain Capital), InterDent (H.I.G.). Ownership data sourced from Pitchbook, accessed December 2020.

[ix]https://www.prnewswire.com/news-releases/riverside-partners-completes-merger-of-allied-dental-with-pg-dental-301182507.html

[x]https://www.nevadabusiness.com/2020/12/absolute-dental-group-closes-acquisition-of-aces-dental/