Lee Equity clinches multi-part urology deal, distress anticipated in other PPM specialties; GA rides Royalty Pharma growth

Lee Equity Partners acquired and merges two urological-care providers and Royalty Pharma has the largest IPO of this year so far.

Happy Thursday!

Some 14 weeks into the quarantine time warp, I’m happy to say I’ll be taking a little hiatus from my beloved Brooklyn neighborhood for a new kind of isolation. I’m off to Jackson Hole this weekend where I plan on hiking, biking, river floating and moose-watching.

Don’t hesitate to send any juicy tips my way in the meantime.
I’ve highlighted some healthcare processes that have relaunched in recent weeks, but the deal pipeline is still very light. One bulge bracket sponsor I caught up with this week said healthcare M&A opportunities are about 80 percent down versus a year ago and believes many exit plans are off by a year.

What’s ahead in PPM
While select M&A deals are moving forward, intermediaries say they anticipate distressed activity in physician practice management to pick up in the third quarter.

Different platforms have some major headaches “due to bad behavior on EBITDA and leverage pre-covid” one lender commented this week. Many PPM companies in verticals like pain management or dental services will be tripping covenants coming off of June 30. Hence, we’ve still got a bit of time before distressed situations become apparent.

“The severity of that depends a bit on whether reopening sticks or there is a retrenchment and how well positioned the businesses were before the pandemic,” one source commented.

After all, price tags got fairly lofty across different physician specialties in recent years. It wasn’t unusual to see platforms command 14x to 15x EBITDA multiples, trading off of some pretty aggressive add-backs. Are you hearing about any sponsors that could be handing over the keys to their lenders? Reach me at springle@buyoutsinsider.com.

Not all PPM businesses are created equally.

This week, Lee Equity Partners acquired and married two urological-care providers, taking a slight majority stake through a newly formed management services organization, Solaris.

While a mostly equity deal, Solaris was levered in the low 4x range – below typical leverage levels for comparable PPM deals in the 5x to 6x range, a source said.

The deal was long in the making, concluding two processes, one for The Urology Group that kicked off in 2017, and one for Integrated Medical Physicians that launched in 2018.

With roughly 100 shareholders, structuring the deal correctly was crucial to ensuring physicians remain motivated to grow their practices, said Mark Gormley, partner at Lee Equity. “There have been a lot of disasters in physician-practice land and we were trying to be extremely careful in making sure we learned from some of the mistakes.”

The covid-19 downturn exposed another upside to the specialty, noted Gormley.

“One thing that makes urology [more attractive] than other PPM businesses: 90 to 95 percent of procedures are mandatory,” Gormley said. You can postpone most procedures at most for three months, but generally when it comes to urology “you don’t have a choice. You’re not going to postpone [a procedure] for a year or two years or just blow it off.”

The thing is, unlike dental or vision-care, few private equity platforms have been established in urology to date. Check out my full story for all the deets.

Top Scoops
Blockbuster debut: In the largest IPO of 2020 so far, Royalty Pharma went public at a nearly $17 billion valuation Tuesday. General Atlantic in February invested in the company, which buys future royalty streams of drugs and co-funds late stage clinical trials. Read my story to find out how much the growth equity firm invested pre-IPO.

ICYMI: Linden’s ProPharma Group isn’t the only outsourced pharma services company up for sale. Two years into its investment, NovaQuest Capital Management has put Clinical Ink back on the market. Read more.

That’s it for today. If you’ve got any deal or people tips on the healthcare front, comments or feedback, reach me at springle@buyoutsinsider.com.