Private Equity Health Care Acquisitions – October 2020

November 12, 2020

As the COVID-19 pandemic wears on, private equity investment in health care continues to outpace the broader industry, and analysts expect that trend to continue. The sector has remained resilient to the pandemic and private equity deal activity is steadily rising. In addition, asset managers are sitting on billions of dollars of cash earmarked for health care acquisitions; as of 2019, private equity firms had $29.2 billion in dry power—capital waiting to be invested—for the health care space.[i]

In light of the growing investor interest in health care and the risks associated with private equity ownership of health care companies, 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 October 2020, with several noteworthy deals described in detail. We will continue to track acquisitions on a monthly basis.

Benevis – New Mountain Capital

New Mountain Capital has acquired Benevis, a dental support organization (DSO) operating approximately 200 dental clinics in 16 states. Benevis filed for Chapter 11 bankruptcy in August, citing declining revenue exacerbated by the COVID-19 pandemic. New Mountain was the company’s primary lender and stalking-horse bidder in the bankruptcy auction. When no other qualified bidders came forward, New Mountain became Benevis’ owner.[ii]

Benevis has a checkered history with private equity ownership. It was previously owned by private equity firm Friedman, Fleischer & Lowe (FFL), which first invested in 2004.[iii]

Under FFL’s ownership, Benevis was sued by the US Department of Justice for violations of the False Claims Act and in January 2018 paid a $24 million settlement. The DOJ alleged that Benevis knowingly submitted false claims to state Medicaid programs for medically unnecessary pediatric procedures and pressured and incentivized dentists to meet production goals. In the DOJ statement, the US Attorney wrote: “The allegations in these cases are particularly egregious because they involved medically unnecessary dental services performed on children… exploiting needy children for financial gain is inexcusable.”[iv]

Two months after settling the federal lawsuit, FFL sold Benevis to private equity firms Littlejohn & Co and Tailwind Capital.[v] Littlejohn and Tailwind held on to Benevis for less than 2.5 years before taking the company into bankruptcy in August 2020.[vi]

Benevis’ new owner New Mountain Capital is no stranger to the dental services industry; the firm also owns Western Dental, a California-based DSO with 175 dental offices in California, Arizona, Nevada and Texas. New Mountain acquired Western Dental in 2012 and has tried to sell the company at least twice—in 2018 and 2019—but was unsuccessful.[vii]

In June, credit ratings agency Moody’s Investor Service downgraded Western Dental’s credit rating to junk status, citing high leverage at above 6.5x. In its analysis, Moody’s also noted that a substantial portion of Western Dental patients financing to pay for dental services:

“Further, we understand that many of Western Dental’s patients are financed at very high interest rates, also raising longer-term social risk, given the growing focus on the affordability of healthcare. We view aggressive collection of patient healthcare bills as a growing social risk to the healthcare industry.

From a governance perspective, Moody’s expects Western Dental’s financial policies to remain aggressive due to its private equity ownership.”[viii]

Given New Mountain’s experience with Western Dental and Benevis’ history with private equity owners, it is worth monitoring how New Mountain and Benevis will weather the anticipated market headwinds in the dental services sector.

St. Croix Hospice – H.I.G

H.I.G. Capital has acquired St. Croix Hospice from the Vistria Group for an undisclosed amount.

Headquartered in Minnesota, St. Croix is a leading provider of hospice services, with 35 branches in six Midwestern states.[ix]

H.I.G.’s troubling past with its other health care companies give cause for a close watch on St. Croix.

A prolific prison services investor, H.I.G. owns Wellpath, one of the largest healthcare companies serving jails, prisons, detention facilities, and state psychiatric hospitals. Wellpath’s subsidiaries have been sued over a thousand times over the last decade and come under investigation and scrutiny by the Department of Homeland Security, Department of Justice, and members of Congress. The allegations include understaffing and inadequate staff training that lead to negligence and untimely care.[x]

See our reports on H.I.G.-owned Wellpath:

H.I.G. also owns Community Intervention Services (CIS), a platform company that acquires and operates regional behavioral health companies. H.I.G. and South Bay Community Services, its CIS subsidiary operating mental health clinics in Massachusetts, were sued by Massachusetts Attorney General Maura Healey for violating the False Claims Act by fraudulently billing Medicaid for mental health care services provided to patients by unlicensed, unqualified, and unsupervised staff members. South Bay Community Services agreed to pay $4 million settlement in 2018, but litigation against H.I.G remains ongoing.

See our report covering H.I.G’s behavioral health investments: Understaffed, Unlicensed, and Untrained: Behavioral Health Under Private Equity.

Community Intervention Services (H.I.G) & Pathways Healthcare (Atar Capital)

This month, H.I.G.’s Community Intervention Services (CIS) sold three of its behavioral health companies to Pathways Healthcare: Access Family Services (AFS), Family Behavioral Resources (FBR) and Autism Education and Research Institute (AERI). Pathways is owned by Private equity firm Atar Capital.[xi]

The three behavioral health companies comprise almost all of CIS’ platform, leaving South Bay Community Services as its last remaining company.[xii] CIS’ disposition of the bulk of its operations suggest that H.I.G. may be winding down the behavioral health platform. It is unclear if the move was related to the ongoing lawsuit against H.I.G. for its alleged role in South Bay Community Services’ alleged Medicaid fraud scheme.

Buyouts

Company	PE Firm	Type
3Disc Dental Connect	Galiena Capital	Medical devices & supplies
Anne Arundel Dermatology	Ridgemont Equity Partners	Dermatology
Benevis	New Mountain Capital	Dental services
Jaffe Sports Medicine	Shore Capital Partners	Physical therapy
MedeAnalytics	JLL Partners	Health tech
Podiatry Group Partners	VSS Capital Partners	Podiatry
ProPharma Group	Odyssey Investment Partners	Practice Management
St. Croix Hospice	H.I.G. Capital	Hospice
Surgical Information Systems	Accel-KKR	Health tech
Surgical Information Systems	Accel-KKR	Health tech
The Women’s Health Group	Shore Capital Partners	Medical group
ThermoTek USA	Havencrest Capital Management	Medical devices & supplies
Vital Care Home Infusion Services	Linden Capital Partners	Home health
Wellsky	TPG and Leonard Green & Partners	Health tech

Add-On Acquisitions

Add-on Company	Acquiring Company	PE Owner	Type
Access Family Services	Pathways Health and Community Support	Atar Capital	Behavioral health
AMAG Pharmaceuticals	Covis Group	Apollo Global Management	Pharmaceuticals
Ardor School Solutions	Ardor Health Solutions	Stepping Stones Group	Health Care Staffing
Beahm Designs	Machine Solutions	BW Forsyth Partners	Health devices
Benz Research and Development	BVI Medical	TPG and Prettybrook Partners	Health devices
Binary Fountain	Press Ganey Associates	Ares Private Equity Group, British Columbia Investment Management, Government of Singapore Investment Corporation (GIC), Leonard Green & Partners and The Abu Dhabi Investment Authority	Health tech
CarePort Health	WellSky	TPG Capital, Leonard Green & Partners	Health tech
Center for Treatment and Recovery	Behavioral Health Group	HCSC Ventures, The Cambria Group and The Vistria Group	Behavioral health
Dermatology Associates of Montgomery	Advanced Dermatology & Cosmetic Surgery	Harvest Partners	Dermatology
Doctor.com	Press Ganey Associates	Ares Private Equity Group, British Columbia Investment Management, Government of Singapore Investment Corporation (GIC), Leonard Green & Partners and The Abu Dhabi Investment Authority	Health tech
Family Behavioral Resources	Pathways Health and Community Support	Atar Capital	Behavioral health
Ferguson Dental Associates	Foundation Dental Partners	Keystone Capital	Dental services
HealthUnlocked	Corrona	Audax Group and Ardan Equity Partners	Health tech
Huntsville Recovery	Behavioral Health Group	The Vistria Group, The Cambria Group and HCSC Ventures	Behavioral Health
Micro-Select Instruments	Katena Products	Golub Capital BDC and Audax Group	Health devices
Momentum Autism Therapy Services	Blue Sprig Pediatrics	KKR	Behavioral Health
NATURELO Premium Supplements	Arcadia Consumer Healthcare	Avista Capital Partners	Pharmaceuticals
Northside Medical Associates	Complete Health	Pharos Capital Group	Medical group
Odoro	Clearwave Corporation	Frontier Growth	Health tech
Omni Vision (San Antonio)	AEG Vision	J.P. Morgan, Riata Capital Group, ACE & Company	Eye care
Performance Sport and Spine Physical Therapy	Golden Bear Physical Therapy & Sports	Shore Capital Partners	Physical therapy
Phoenix Home Care & Hospice, Heartwood Home Health & Hospice	Charter Health Care Group	Pharos Capital Group	Home health
Precision Healthcare	IVX Healt	Linden Capital Partners	Infusion
Reflections Dental Centre	Smile Brands	Gryphon Investors, PineBridge Investments, GMB Mezzanine Capital, and Triangle Capital	Dental services
Rosewood Centers for Eating Disorders	Monte Nido & Affiliates	Levine Leichtman Capital Partners	Behavioral health
Stryker Performance Solutions	HOPco	Audax Group, Mitchell Family Office, and Linden Capital Partners	Health tech
Tellus	Netsmart Technologies	GI Partners and TA Associates Management	Health tech
TractManager	Symplr	kyKnight Capital, Clearlake Capital Group and New Mountain Capital	Health tech
Travis Medical	National Seating & Mobility	Cinven	Medical devices & supplies
Verge Health	RLDatix	TA Associates Management, Five Arrows Capital Partners, Susquehanna Growth Equity	Health tech