Joint custody M&A is trending: TPG’s WellSky, Clearlake’s Symplr

TPG, Leonard Green, Welsh, Carson, Anderson & Stowe, Clearlake and Apax have all recently participated in this trend.

We’re seeing the acceleration of one private equity phenomenon: More and more firms are selling partial stakes and bringing in new PE partners to continue riding growth in companies. At the same time, 50-50 ownership structures seem to be more commonplace than ever.

That trend has nothing in particular to do with healthcare. But generally, more and more firms are doing this. Think… Clearlake Capital, TA Associates, Welsh, Carson, Anderson & Stowe, Vista Equity.

If you’ve been following recent activity in healthcare technology, you may have noticed.

Just in: One of those firms – Santa Monica’s Clearlake – is considering a minority stake sale or 50-50 joint ownership structure for Symplr. Clearlake bought the healthcare governance, risk and compliance software company less than two years ago. For price expectations and more, check out my full story.

The process comes amid Leonard Green & Partners pending $3 billion-plus deal for TPG’s WellSky, marking one of the largest HCIT deals of the year. LGP and TPG are set to each hold 50 percent stakes in the post-acute care software company, sources told me.

TPG explored a variety of transactions, but it ultimately became clear that a 50-50 structure was the most attractive opportunity for all parties, Nehal Raj, who co-led the deal at TPG alongside Jeff Rhodes, told me.

Besides providing continuity for the company by remaining invested, “we [TPG] saw a lot of opportunity ahead for the company and so to remain invested was very attractive. The go-forward returns should be very strong.”

Besides providing continuity for the company by remaining invested, “we [TPG] saw a lot of opportunity ahead for the company and so to remain invested was very attractive. The go forward returns should be very strong.”

For buyers in the running, the 50-50 deal also resonated, adding some degree of comfort given the large transaction size.

“We do see the post-acute care landscape continuing to consolidate, and we want to make sure we can continue to be a leader,” Raj said. “As the industry grows, capital needs get bigger and the opportunity gets bigger.”

For more insights from Raj and WellSky CEO Bill Miller, check out my full report.

Broadly, sources tell me this strategy is only accelerating through the downturn. “It’s already really hard to find good, scale companies today. In a covid world it becomes really, really hard,” one PE investor said.”

For buyers coming in, it’s also more comfortable in some ways to buy 50 percent or 60 percent in certain cases, sources said. Why? It’s the idea that you’re not just paying the highest price. Rather, you now have another private equity firm to partner with going forward – and can see from the outset that they actually do care about what the future holds. In today’s world of uncertainty, that resonates.

On top of that, there’s a lot of complexity around fund dynamics, fund carry and individual  economics. In many cases of 50-50 deals, equity stakes are sold out of a firm’s old fund entirely and invested out of their new fund. That lets the incumbent private equity firm generate carry dollars sooner, start deploying their new fund, all the while supporting new, up-and-coming partners that want to prove themselves and get a mark and get promoted, one sponsor explained.

In other recent examples, WCAS early this month agreed to sell a stake in InnovAge to Apax in a $950 million deal, creating a joint 49-49 percent ownership structure for the provider of PACE (Program of All-inclusive Care for the Elderly).

Elsewhere, Fransisco Partners in June sold a minority stake in QGenda to ICONIQ Capital, producing a $1 billion-plus valuation for the provider of healthcare-focused workforce management software.

Action Item: Read more about the WellSky transaction