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Private Equity Health Care Acquisitions – October 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

CompanyPE FirmType
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 CompanyPE OwnerType
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

[i] “The Healthcare PE Investment Landscape,” Pitchbook Q3 2020 healthcare analyst report, September 2020.

[ii]https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/to-remedy-covid-19-impasse-private-equity-owner-hands-benevis-to-private-lender-60805464

[iii]https://www.fflpartners.com/investments/benevis

[iv]https://www.justice.gov/opa/pr/dental-management-company-benevis-and-its-affiliated-kool-smiles-dental-clinics-pay-239

[v]https://www.businesswire.com/news/home/20190412005087/en/Benevis-Appoints-Industry-Veteran-Rich-Beckman-as-Chief-Executive-Officer

[vi]https://www.businesswire.com/news/home/20200803005461/en/Benevis-Enters-Voluntary-Chapter-11-Reorganization

[vii]https://webcache.googleusercontent.com/search?q=cache:-2NJHEtjX60J:https://www.pehub.com/new-mountains-western-dental-returns-to-auction-block/+&cd=3&hl=en&ct=clnk&gl=us

[viii]https://www.moodys.com/research/Moodys-downgrades-Premier-Dental-Services-Incs-to-Caa1-CFR-stable–PR_427130

[ix]https://www.prnewswire.com/news-releases/the-vistria-group-reaches-agreement-to-sell-st-croix-hospice-301154947.html

[x]https://pestakeholder.org/wp-content/uploads/2019/06/HIG-Capitals-Correctional-Healthcare-Investment-Risks-PESP-062519.pdf

[xi]https://www.businesswire.com/news/home/20201006005812/en/Pathways-Acquires-Three-Subsidiaries-of-Community-Intervention-Services-Inc.-CIS

[xii]https://communityinterventionservices.com/about2/

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