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For Bain Capital PE, all the stars aligned at Surgery Partners

Bain Capital Private Equity this week was the victor in a couple of deals, one of which also positioned H.I.G. Capital to score a tremendous return on its longtime investment in Surgery Partners.

Bain Capital, the Boston private-equity giant, is acquiring H.I.G.’s stake in Surgery Partners, the publicly traded but private-equity-controlled provider of surgical services.

In turn, Surgery Partners will acquire National Surgical Healthcare from Irving Place Capital for about $760 million. Irving Place thus exits NSH, which owns and operates surgical facilities in partnership with local physicians. Irving Place had acquired NSH in January 2011.

H.I.G. agreed to sell its 54.51 percent stake in Surgery Partners to Bain Capital for $19 a share, or $503 million. H.I.G.’s initial equity investment in Surgery Partners in 2010 was in the ballpark of $50 million to $60 million, sources familiar with the matter told Buyouts.

H.I.G. didn’t sell any shares in the 2015 IPO, but shortly afterward disposed of about 1.3 million shares worth about $25 million. In total, H.I.G. is set to command a return on its initial investment in the teens, the sources said.

For Bain, partnering with Surgery Partners offered a more compelling value proposition and ultimately gave the firm an edge on the competitive process for NSH, Bain Managing Director Devin O’Reilly told Buyouts.

“There was certainly a fair bit of complexity here to align with all the relevant stakeholders, but this is a strategic deal that made a lot of sense for all parties,” O’Reilly said. “It helped that we knew the Surgery Partners team, and it helped that we spent a lot of time getting to know NHS.”

As initially reported by Reuters, London’s BC Partners was also in the running in the JP Morgan Securities-run process for NSH. Jefferies served as financial adviser and provided committed financing to Surgery Partners and Bain on the transaction.

Bain Capital Private Equity’s relationship with the Surgery Partners team dates to before the company’s September 2015 IPO, O’Reilly said. The parties held an active dialogue over the past nine months or so and had evaluated other opportunities together, he said.

Combining Surgery Partners and NSH made sense from both operational and strategic perspectives: The combined business will have an expanded geographic footprint and an even greater diversity of surgical and ancillary services, O’Reilly said. “We had all those stars align.”

Bain, for its part, has a history of coming up with creative structures or angles to facilitate strategic transactions. Surgery Partners was particularly unusual, as the sponsor typically deals with private companies. “Working with a public company in some ways makes it easier,” O’Reilly said. “Our history of following the company in the public markets allowed us to move quickly on this opportunity.”

“Relative to a private transaction we had to move very quickly in this case,” he added. “This was made possible due to the knowledge base we had from reviewing many opportunities in the sector.”

Bain’s double play for Surgery Partners and NSH isn’t too different from the strategic maneuvering that produced the pediatric home health giant now called Aveanna.

The PE group in February struck a deal to buy J.H. Whitney Capital Partners’ PSA Healthcare and combine it with Epic Health Services, the even larger asset it had bought just weeks earlier.

Bain’s deal for Epic Health — which it bought from Webster Capital Management — was valued at about $950 million, or about 12x EBITDA, sources familiar with the matter said at the time.

The subsequent PSA deal was expected to fetch an enterprise value close to 10x its about $30 million of EBITDA, suggesting the deal was valued near $300 million, sources previously said. In connection with the transaction, the PSA management team and J.H. Whitney rolled over their current ownership interests into the newly formed affiliate.

For Bain, creativity and collaboration are likely to remain part of its investment process. In fact, the firm partners in roughly 40 percent to 50 percent of its investments, whether that’s with another sponsor, strategic, founder or family, O’Reilly said.

Representatives of H.I.G. didn’t return requests for comment, while those with Irving were unavailable to talk.

Action Item: Learn more about Bain’s healthcare-investment portfolio:

Bain Capital Private Equity Managing Director Devin O’Reilly. Photo courtesy of the firm.