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Capital One, HPS back TPG’s $1.2bn deal for LifeStance Health

Sources said $225 million in debt financing is being provided through a unitranche structure.

Capital One and HPS Investment Partners are stepping up in the midst of the pandemic, committing debt financing to support TPG’s recent $1.2 billion bet in behavioral health, according to two people familiar with the matter.  

About a week ago, TPG shook hands to acquire a majority stake in LifeStance Health, agreeing to underwrite the full purchase price with equity with the ability to obtain financing later, PE Hub wrote. 

In connection with the full equity backstopped deal, existing investors Summit Partners and Silversmith Capital Partners remained minority investors. 

Capital One and HPS, a spinout from Highbridge Capital Management, are providing $225 million through a unitranche structure, one of the sources said. 

Capital One has a unitranche loan program called ULTra alongside HPS as its strategic co-investor. ULTra closed on approximately $1.1 billion in commitments to borrowers in the healthcare and services industries in 2018. 

ULTra is likely the entity that TPG worked with, one source said. 

HPS, formed in 2007 as a unit of Highbridge Capital Management within J.P. Morgan Asset Management, was formerly known as Highbridge Principal Strategies. 

The deal for LifeStance is particularly notable in a period where most large scale M&A has been postponed or called off in the wake of a volatile economic environment. 

LifeStance has proven an exception, with its auction managing to not only proceed as planned, but to produce a high teens multiple of EBITDA.

PE Hub wrote last week that TPG prevailed over other large buyout funds, with around four finalists down to the wire. At least one runner-up bid at approximately $1.125 billion, a source said, just shy of the $1.2 billion outcome. 

Sources attributed the successful outcome of the Jefferies-run process in part to the backdrop of the behavioral health industry. Job loss and life loss will have lasting effects, hence providers of mental health services are viewed as longer-term beneficiaries of the covid-19 crisis. 

While the transaction structure still comprises largely equity, it would be logical for the company to operate and grow during the challenging backdrop and pursue a second-lien term loan later, returning some of that equity, one of the sources suggested. 

TPG and HPS declined to comment. Capital One didn’t immediately return a request for comment on Wednesday. 

Action Item: Read more about the process behind TPG’s $1.2 billion deal for LifeStance