Private Equity Firms Announce Exits in the Healthcare Sector


April 10, 2015

Thursday saw two exits by private equity firms from the healthcare sector, as both Brazos Private Equity Partners and Warburg Pincus announced they are selling their stakes in two separate companies. Both deals had been talked about previously, but yesterday saw the announcements of the deals being finalised. The firms managed to make profitable exits, highlighting the opportunities in the healthcare sector for private equity firms.


Brazos Private Equity Completes Sale of Healthcare Solutions
The Dallas-based private equity firm released a press release on Thursday to announce its departure from one of its portfolio companies. It will sell the Healthcare Solutions Inc. to Catamaran Corporation.


The co-chief executive officer and co-founding partner of Brazos Private Equity Partners, Jeff Fronterhouse, said in the official statement, “We are very pleased to complete this successful investment in Healthcare Solutions. Together with the leadership team at Healthcare Solutions, we have accomplished our goal of building the company into a market leader.  Healthcare Solutions has a very exciting future ahead and we wish everyone associated with the business continued success as they move forward as a part of Catamaran.”


The private equity firm focuses on these middle-market companies, especially in the fields of healthcare, consumer, commercial & industrial and business service. Its typical companies in the portfolio have enterprise values of around $500 million and the firm currently has around $1 billion of equity capital under management.


Healthcare Solutions Inc. provides integrated medical cost management solutions to its customers. Its services include pharmacy benefit management and medical bill review, for instance. Its new owner, the Catamaran Corporation, is a leading provider of pharmacy benefit management services and technologies. It has been active on the markets, having bought Salveo Specialty Pharmacy from Petra Capital Partners just last year.


The deal was originally announced last month, with the deal now being officially finalised. During the initial reporting, it was thought Catamaran Corporation would pay $405 million in cash to the private equity firm.


Brazos Private Equity Partners Makes Another Move
The Healthcare Solutions Inc. deal wasn’t the only deal for the private equity firm on Thursday. It also released a press release stating another one of its portfolio companies has successfully completed an acquisition. BlackHawk Industrial Distribution, a big North American distributor, has acquired both Packaging Inc. and Pioneer Tool Supply. Randall Fojtasek, co-founding partner and co-CEO of Brazos Private Equity Partners and chairman of BlackHawk, celebrated in the press release ‘the successful growth’ of the company as “a great example of Brazos’ buy-and-build strategy.


Warburg Pincus to Also Exit From a Healthcare Company
Brazos Private Equity Partners wasn’t the only firm making an exit in the healthcare sector on Thursday. Warburg Pincus, the US-based firm, announced it is selling its stake in Metropolis Healthcare, the diagnostic laboratory chain. The firm had announced its intentions to get rid off its 27% stake in the company and the deal has now been finalised.


The Shah family has bought back their stake in the company from Warburg Pincus. The financial details of the deal were not available at the time of writing, but the statement revealed the private equity firm’s exit was profitable. The Shah family now owns the remaining stake in equal measure with G.S.K. Velu, founder of the company.


Ameera Shah, managing director and CEO at Metropolis Healthcare was quoted by LiveMint stating, “The shares have been acquired by me and my family, and we are very excited about the new phase of growth in Metropolis and the industry. The company is now supported by eminent independent directors and I am backed by other marquee investors, including KKR and eminent industrialists.” The firm acquired the 27% stake from the private equity firm ICICI Venture Ltd in 2010. That deal was worth $85 million. Metropolis Healthcare is an international company with operations in United Arab Emirates, South Africa, Sri Lanka, Kenya, Ghana and Mauritius.


Interest From Other Private Equity Firms
When it was first announced that Warburg Pincus is looking for an exit, many private equity firms were linked to the company. Deal Curry reported at the time that private equity firms Apax Partners, Carlyle Group, Temasek, KKR and Advent International are all interested in buying the stakes. The healthcare company was founded in 1998 and has since grown quickly amidst the lucrative opportunities currently available in the healthcare sector in emerging markets. It is among the three leading diagnostic laboratories in India.


When Warburg Pincus bought the stake from ICICI Venture, the private equity firm made a three to four time returns from its initial investment. This has analysts speculating that Warburg Pincus probably made at least twice the amount it invested as well.


Perhaps private equity firms will receive another opportunity to invest in Metropolis Healthcare, as Business Today reported that the company’s other owner G.S.K. Velu had been reportedly planning an exit due to differences among the promoters. Although Velu has so far denied he is looking for a way out, telling Business Today, “I will not exit Metropolis as it is a growing company”.

Healthcare Sector Remains a Lucrative Opportunity
The above deals show that private equity firms investing in the healthcare sector have been benefitting greatly, especially in the emerging markets. Countries like India and Brazil have had increase in healthcare sector activity and Africa is another potential market for many firms. Preqin’s report from March shows that investments have increased massively in the past five years. The aggregate funds raised in 2011 stood at $61 billion and had more than doubled by 2014, when the amount totalled $130 billion. North America-based managers led much of the activity and in total buyout firms were responsible for 61% of the total funds raised during the last decade.


There had been concerns the Affordable Care Act in the US might influence deal activity there, but there is so far no indication of this. Fundraising in the sector has continued to remain strong and further deals, as well as exits, wouldn’t come as a surprise.


If you want to find private equity deals in the healthcare sector, you can do so at DealMarket.

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