Behind THL’s SPAC-driven deal for Universal Hospital Services

  • Deal value: $1.74 bln
  • FSAC looked at >300 healthcare opportunities prior to UHS deal
  • SPAC raised $460 mln in July ’17

Thomas H. Lee Partners’s purchase of Universal Hospital Services represents a new tack for the private equity firm, as the deal marks the first done through a blank-check company.

“The evolution of the SPAC market is something that’s occurring quite rapidly,” said THL Co-President Scott Sperling. “You have moved away from single investors raising $50 million to $150 million to do a deal, to large sponsor-backed SPACs that are set up to take advantage of sponsors’ expertise and relationships … but in a form that aligns better with a set of returns that would be at the high end of the public markets and lower end for PE.”

Boston’s THL earlier this month said it would merge its special purpose acquisition company, Federal Street Acquisition Corp, with Irving Place Capital Management’s Universal Hospital Services in a deal valued at $1.74 billion. Irving Place will retain a minority equity stake in the newly combined company, Agiliti, which provides medical equipment management services to health systems across the country.

While THL has deep roots in healthcare investing, the firm over the course of the years has come across a number of transactions that weren’t appropriate for its traditional PE fund, said Sperling, who also serves as the executive chairman of FSAC.

The firm has frequently reviewed opportunities that are either too mature for a PE fund or may have a dynamic such that a five-year ownership plan may not make sense, for instance, Sperling said. More specifically, the nature of the companies that FSAC had expected to find were those lacking the return qualifications of its traditional PE fund – 25 percent to 30 percent [IRR] with upside, Sterling said.

That recognition largely laid the foundation for the SPAC, which raised $460 million in its July 2017 IPO – more than it had initially set out for.

Well over 300 opportunities were evaluated by a FSAC-dedicated team separate from THL’s healthcare and PE teams, though the resources of those groups were leveraged, Sperling said.


During the course of the process the team reconnected with UHS CEO Tom Leonard, an executive that THL had tried to hire to lead other portfolio companies over the past five or six years, Sperling said: “When we first connected with Tom it was about backing Tom.”

“It was a situation that was unusual in that [UHS] had the kind of growth and returns that coincided with what we look for in our PE fund,” Sperling said.

Despite the company’s acceleration of growth and strong free cash flow, he added that the option of doing a straight PE deal didn’t really fit with the selling dynamics – the need of a long-term holder and seller liquidity.

The SPAC ultimately presented a “perfect hybrid model” for both the company and Irving Place, agreed UHS’s Leonard.

While UHS never ran a formal process, Leonard said the company began fielding inbound interest over the past 18 months or so as its improvement in performance became increasingly clear, Leonard said.

With Irving Place’s investment dating to 2007, the transaction provides liquidity while at the same time allows the firm to participate in future growth through its continued minority ownership. An IPO wasn’t really on the table given the need for liquidity, Leonard said.

For UHS, the access to public equity and cheaper access to capital to fuel growth was appealing, he said.

Agiliti anticipates 9 percent to 11 percent compound annual growth in the long-term, fueled by underlying drivers including an increase in both the number and complexity of medical devices and equipment. That trend in turn is fueling demand for the services, logistics and management of such products, the CEO said. Additional tailwinds include the cost-pressures of hospitals and health systems, he said.

Agiliti will also consider tuck-in M&A opportunities that will support geographic expansion or add new capabilities, Leonard said.

“There are a handful of larger strategic M&A opportunities that have the ability to add scale … but there’s not an urgent need because we have ample opportunities organically,” Leonard said. “That allows us to be a smart buyer.”

Agiliti intends to apply to have its common stock and warrants listed on the Nasdaq under the symbols AGTI and AGTIW, respectively.

Irving Place declined to comment.

Action Item: Read more about the transaction here