Gryphon prevails in auction for Ares’ OB Hospitalist with $625 mln deal

Gryphon Investors surfaced as the winner in the sponsor-driven auction for what is considered the largest provider of obstetric hospitalist services in the U.S.

The San Francisco private equity firm agreed to buy Ares Management’s OB Hospitalist Group in a deal valued around $625 million, sources familiar with the matter told Buyouts. Moelis & Co and Jefferies provided sell-side advice to the specialty hospitalist group concentrated on obstetrics/gynecology.

The Mauldin, South Carolina, company was marketed off $47 million in projected adjusted run-rate EBITDA for 2017, sources said, implying a multiple of EBITDA of about 13.3x.

The process was initially said to have created some noise around valuation, as 2016 unadjusted EBITDA was closer to about $30 million.

But two key elements ultimately got sponsors comfortable in underwriting the deal based on 2017 EBITDA. Importantly, for de novo sites that OB Hospitalist has recently won or actually started, there’s a high degree of visibility into their steady-state revenue, one source explained. Close to 90 percent is contractually paid to the company from the hospitals, the person explained.

Sponsors were also inclined to give full credit for adjustments based on the company’s roughly 30 percent growth rate on a revenue basis over the past five-plus years, this person said. Earnings growth has been even sharper, the source added.

While the target fielded first-round offers primarily from sponsors, a small number of strategics also took part but weren’t expected to move forward, Buyouts reported in May.

For Gryphon, OB Hospitalist presented an “unusual” opportunity, in that it meets all three of the firm’s desired investment objectives, said Nick Orum, president and head of Gryphon’s healthcare team, by phone.

Gryphon typically pursues investments that improve healthcare quality and outcomes, increase patient access, and/or lower the overall cost of the healthcare system, but rarely does a company achieve all three objectives, he said.

Gryphon, Orum said, began seeking attractive platform investment opportunities in outsourced hospital-based medicine about year ago, ultimately identifying OB Hospitalist as an attractive sub-specialty in October. “OB Hospitalist was the clear independent leader [in the segment,] so this really was the asset of greatest interest to us,” Orum said.

In connection with the deal, Kevin Blank, a member of Gryphon’s operations resources group, will join the OB Hospitalist board as executive chairman. Adam Singer, founder and former CEO of IPC Healthcare, also advised Gryphon and will join the board.

Ares, which first invested in October 2013, will maintain a minority ownership position alongside company Founders Chris Swain and David Swain.

Founded in 2006, OB Hospitalist develops and manages personalized 24/7 onsite obstetrics hospitalist programs to hospitals in the U.S. Its network encompasses more than 550 OB hospitalists serving more than 120 active and onboarding partner hospitals across 28 states.

Action Item: Get in touch with Gryphon’s Orum at orum@gryphoninvestors.com

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