Leonard Green joins TPG as investor in WellSky, topping $3bn valuation

Underscoring sponsors' appetite for scale healthcare software providers in large markets, TPG is set to remain a 50 percent shareholder almost four years into its investment.

In one of private equity’s largest healthcare tech deals of the year, Leonard Green & Partners has acquired a stake in TPG Capital’s WellSky. 

The deal values WellSky, a software provider to the post-acute care industry, just north of $3 billion, according to people familiar with the matter. 

The private equity firms will each hold 50 percent ownership stakes in the Overland Park, Kansas-based company, they said. TPG, approaching four years into its investment, will reinvest from both TPG Partners VIII and TPG Healthcare Partners. 

TPG declined to comment on terms of the transaction, but Nehal Raj, partner and co-head of the firm’s software investment activities, said the new capital structure will give WellSky the support and financial wherewithal to be on the front foot as the end-markets it serves continue to evolve. 

“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 in an interview. “As the industry grows, capital needs get bigger and the opportunity gets bigger.”

Consistent with the buyout fund’s cross-sector collaboration strategy, Raj co-led the transaction alongside Jeff Rhodes, partner and co-head of healthcare at TPG.  

As first reported by PE Hub in early July, the agreement concludes a Goldman Sachs- and William Blair-run process that kicked off in the middle of the downturn. 

For LGP, the deal follows its more than $4.2 billion deal for Press Ganey, the largest independent provider of patient-satisfaction surveys for hospitals. LGP invested alongside Ares Management in the 2019 deal. 

WellSky, Raj said, was quickly in and out of the market. 

“The business continued to crush it post-covid, and so that gave us a lot of comfort in [predicting] how the business will perform. That was a big box to check,” Raj said. “The other question: what is private equity’s appetite to do a deal right now? With that, we didn’t have to ask. The inbound was there pre-covid, and then, post-covid … Knowing the numbers, we knew people would like what they saw.” 

In fact, coronavirus has only accelerated WellSky’s market adoption, as more care is decentralized and volume increasingly gets moved to post-acute care settings such as the home, added Bill Miller, CEO of WellSky.

“In spite of the circumstances, it was a good time,” to go to market and transact, Miller said. “While others were being cautious and waiting to see [how things shake out], there is an opportunity WellSky has to stay active and I intend to use this capital to do exactly that.”

“We’ve done remarkably well through covid,” Miller continued. “Whether it’s covid or other things down the line, it spells picking up our pace in innovation.”  

Besides a Software-as-a-Service model that serves end-markets minimally impacted by the pandemic, the private equity community also deemed WellSky’s financial profile attractive. The company’s revenue is growing at a compound annual growth rate in the low teens alongside profit margins of approximately 40 percent, sources told PE Hub

WellSky, since its founding in 1980 as Mediware Information Systems, has evolved significantly. Once a company hyper-focused on clinical software tailored to blood banks, WellSky today provides software to more than 15,000 payor and provider clients across various post-acute and community-based sites of care.

This strategy differentiates WellSky. Most competitors have a software solution focused on one particular end market, according to Raj. 

“We have taken a different strategy, which is not to lose any of the depth in any one end market, but in addition, to go broad,” Raj said. “Having breadth is going to be a huge strategic advantage over the next several years.”

The greater the breadth of WellSky offerings, the greater potential applicability of its solution and data analytics to payors and other industry participants who “view post-acute as a black box,” Raj said. In other words, he said, “the more valuable our data becomes.”

WellSky’s massive value creation reflects its aggressive M&A playbook and organic growth over the years. 

A $3 billion-plus valuation is more than 15x the $194.6 million at which Thoma Bravo took the company private in 2013. TPG bought WellSky from Thoma Bravo in February 2017 for an undisclosed price. 

WellSky now has the resources to continue on its agenda to transform the post-acute care environment, including through M&A, Miller said: “[We plan to] expand into other care settings, strengthen the kind of work we do with payers and increasingly maintain our leading position in AI.”

In recent M&A , Wellsky in late 2019 snapped up ClearCare, expanding further into the home setting as it added the Battery Ventures-backed provider of non-medical home care software. 

WellSky underscores sponsors’ strong appetite for scale healthcare software companies that play in large markets. It also shows that premium assets will continue to command premium prices through the downturn. 

Sources placed Wellsky’s EBITDA at approximately $150 million, implying a deal valued at more than 20x EBITDA. 

In other high-profile activity this summer, ICONIQ Capital joined Francisco Partners as an investor in QGenda. The deal valued the workforce-management company specializing in healthcare at $1.05 billion, sources said. 

Earlier this year, Blackstone bought HealthEdge in what marked the first healthcare-focused deal led by the buyout fund’s new growth-equity team. The deal for HealthEdge, which makes administrative software for health plans, was valued upward of $700 million. 

Leonard Green and William Blair did not return requests for comment. Goldman Sachs declined to comment.

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