Genstar to make 4.4x its money with Netsmart sale: source

Genstar Capital is set to reap a 4.4x return on its sale of Netsmart Technologies Inc. to GI Partners and Allscripts Healthcare Solutions Inc, according to a source familiar with the situation.

The sale, which was agreed March 23, marks the latest in a series of exits for Genstar, which closed its Fund VII on $2 billion last year. Genstar acquired Netsmart in 2010 from Bessemer Venture Partners and Insight Venture Partners.

GI Partners and Allscripts agreed Wednesday to buy Netsmart, which provides electronic medical records for the behavioral-health sector, in a deal valued at $950 million. The sale will be the third time Netsmart is owned by a private equity or venture firm.

UBS and the lenders have committed to provide up to $612 million in debt, according to an 8K filing.

Chicago-based Allscripts, which provides health-care providers with IT services, is merging its post-acute home-health business with Netsmart, a statement said. Allscripts will operate the merged company through a joint venture and is investing $70 million, the statement said. Allscripts will own 51 percent of the JV, while GI Partners will have 49 percent, the SEC filing said.

Netsmart CEO Mike Valentine will head the combined company. Netsmart, which is staying in Overland Park, Kansas, will have $250 million in annual revenue and more than $60 million in annual operating income, the Allscripts statement said.

Howard Park, a GI managing director, said Allscripts had considered its post-acute home-health business non-core, while Netsmart CEO Valentine had wanted to move into the post-acute space.

“We [took] an under-invested, neglected asset and contributed it to the joint venture,” Park said. “This accelerates Mike’s desire to move into the post-acute care space.”

GI Partners, of San Francisco, is using its fourth fund to invest in Netsmart. GI Fund IV closed at $2 billion in 2014. Performance data for the pool was unavailable.

Quadrupling its money

Earlier this month, Genstar said it was selling ERT to Nordic Capital for a purchase price of nearly $1.8 billion, Buyouts reported. Genstar is expected to make 8x its money with the transaction, Buyouts said.

Genstar, along with Aquiline Capital Partners LLC, is also seeking a buyer for AssetMark, Buyouts reported.

Genstar expects to make 4.4x its money with the sale of Netsmart, a person familiar with the situation said.

The PE firm has already gotten some of its money back. In 2012, Netsmart refinanced its debt, which allowed it to pay a “dividend representing a 16 percent return of capital” to Genstar, the PE firm said in its 2012 Year in Review.

Another payout occurred in March 2015 when Netsmart used a $250 million loan to support a dividend recap.

Genstar used its fifth fund, which raised $1.58 billion in 2008, to buy Netsmart. The PE firm closed its sixth pool, which collected $1 billion in 2012, while its seventh fund closed at $2 billion last year.

Fund V is producing a 14.2 percent net IRR and a 1.9 investment multiple as of March 31, according to performance data from the University of California Regents. Performance data for funds VI and VII were not available.

Houlihan Lokey and UBS Investment Bank acted as financial advisors for GI and Allscripts. JPMorgan and William Blair advised Netsmart.

Genstar declined comment. Netsmart and Allscripts could not be reached for comment.

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