Consolidators brace for decision on California’s controversial SB 977; Kohlberg makes big splash for Partners’ PCI Pharma

Blackstone Tactical Opportunities will be investing $275 million in Cryoport to support two new acquisitions in the cell and gene therapy supply chain.

Happy Thursday!

This week there was a whole lot of noise around pharma services on the heels of Kohlberg & Co’s $3-billion-plus bet for PCI Pharma, which left Partners Group with a minority stake, I wrote.

Topping valuation expectations, the outcome of the process left some of the company’s former investors with a pretty handsome return, I learned. I’ve got more breaking news coming on other relevant situations. Stay tuned!

Policy drama
It’s my last week on the West Coast, where I’ve been grateful to have an escape from my tight quarantine quarters in Brooklyn much of the summer.

As such, I’ve also been getting up to speed on a law proposed early this year that could have a significant impact on healthcare consolidation in California – giving the state’s attorney general an unprecedented level of authority over dealmaking.

As written, California Senate Bill 977 would give attorney general Xavier Becerra the ability to “deny consent to a change of control or an acquisition between a health care system, private equity group, hedge fund, and a healthcare facility, provider, or both.”

That is, unless the involved party successfully shows the transaction will result in either a substantial likelihood of clinical integration, a substantial likelihood of increasing or maintaining the availability and access of services to an underserved population, or both.

Private equity funds weren’t originally included in the legislation, but added in alongside hedge funds around March. I’m not sure if it was due to the distraction of the pandemic and market uncertainty, but until the last month or so, I hadn’t heard much of a peep on this from sources I regularly speak with.

“Private equity wasn’t able to put together a lobby group to really try to scale the legislation to what it really was intended for: healthcare systems. So they are sort of stuck with this stuff,” according to Gary Gertler, managing partner of the Los Angeles office of McDermott, Will & Emery.

“I think they have no idea how many deals are being done in California and that the world is going to be overloaded here,” Gertler said.

That said, some lawyers told me there may be caveats for investors should the law be imposed, while others spoke to the unintended consequences, characterizing the law as contrary to its objective of reducing anti-competitive behavior.

SB 977 is currently awaiting a full assembly vote, and assuming its passage, the controversial law would be voted on by California’s governor by the end of September.

Check out my full story with comments from other experts at SheppardMullin, Proskauer, Reed Smith and Bass, Berry & Sims.

Top Scoops
Blackstone healthcare: Blackstone Tactical Opportunities will be investing $275 million in Cryoport to support two new acquisitions in the cell and gene therapy supply chain. Read our brief and stay tuned for PE Hub’s full coverage on the deal.

The investment comes about a month after HealthEdge Software, owned by Blackstone, snapped up The Burgess Group on its mission to automating the full transactional system for health plans. Check out my previous report.

Elsewhere… Warburg Pincus-backed Qualifacts has joined forces with Martis Capital’s Credible Behavioral Health in a push to become the first nationwide electronic health record platform specializing in behavioral health. I caught up with Qualifacts CEO David Klements earlier this week for more detail on the deal. Read more.

That’s it for today’s rundown.

As always, reach me at springle@buyoutsinsider.com with your tips and feedback, or just to say hello.