Therapy Brands has scored a new majority owner in KKR as the growth of behavioral healthcare calls for more tailored software, with Lightyear Capital marking its second major exit at the intersection of healthcare and tech-enabled financial services.
Announced late Wednesday, the deal values Therapy Brands at $1.25 billion, sources familiar with the matter told PE Hub. Topping expectations cited by sources previously, that translates to a 2021 EBITDA multiple of approximately 25x, based upon the asset’s $50 million in estimated 2021 EBITDA (alongside $125 million in revenue) marketed in the sale process. That’s up from approximately $18 million in pro forma EBITDA, as reported in 2018 by the Wall Street Journal.
Buoyed by nine acquisitions and organic growth, Therapy Brands in less than three years tripled in size under Lightyear and other existing backers – Oak HC/FT, Greater Sum Ventures and PSG, the latter which will remain a minority investor alongside KKR.
Therapy Brands’ momentum is poised to continue under KKR, sources told PE Hub, as the behavioral health industry remains one of the fastest-growing categories in healthcare. Fueled by the continued de-stigmatization of the industry and more individuals seeking mental health services coming out of the pandemic, the need for technology solutions only grows as practices expand and add practitioners.
At the same time, behavioral health providers have historically not adopted technology to the extent of other healthcare specialties; many today remain paper-based.
Therapy Brands, through its 19 brands, provides integrated vertical payments and software solutions tailored to professionals across various sub-segments of the behavioral health market. Supporting more than 28,000 practices, its offerings range from practice management software with integrated billing to data collection software, electronic health record software and telehealth tools.
Under Lightyear, whose roots lie in payments and insurance, Therapy Brands increased its client base but also grew revenue by cross-selling value-added solutions. During Lightyear’s investment, Therapy Brands’ payments penetration doubled overall, a source familiar with the company said.
Lightyear, broadly, has a systemic view around growth in embedded payments – which the firm defines as “the integration of financial services into non-financial websites, mobile applications, and business processes.” Lightyear’s market research, recently featured in Forbes, estimates that embedded finance will grow to nearly $230 billion (in revenue) by 2025, up from $22.5 billion this year.
As it relates to Therapy Brands specifically, much of psychotherapy is still private pay today, but insurance coverage for behavioral health treatments is increasing. That will only fuel demand for revenue-cycle-management solutions, for example.
Other private equity firms investing behind behavioral health-focused technology include Warburg Pincus and Martis Capital, which in August merged Qualifacts and Credible Behavioral Health in a push to become the first nationwide electronic health record platform specializing in behavioral health.
Lightyear, for its part, has been developing an effort at the nexus of financial services and healthcare for only about a decade.
The financial services specialist’s first foray into the segment was in 2002, when it purchased Alegeus in 2012 for $335 million as a carveout from Fidelity National Information Services. Six years later, Vista Equity Partners prevailed in a highly-anticipated auction for Alegeus through a deal that sources said valued the consumer-directed healthcare payment and processing firm somewhere between $750 million and $900 million.
Given both the industry’s size and complexity, healthcare payments present a tremendous opportunity to address inefficiencies.
KKR, investing in Therapy Brands through its Americas XII Fund, appears a natural buyer. The firm has investment experience in behavioral healthcare businesses including Blue Sprig Pediatrics and BrightSpring Health Services; in high-growth healthcare technology companies like WebMD and Clarify Health; and in vertical market software companies including Autodata, Epicor Software Corporation, Ipreo, Mitchell, MYOB and OptimalPlus.
Not only are private equity groups showing increasing appetite around the sector, but big banks are paying up to get into healthcare payments. In mid-2018, JP Morgan Chase forked out $550 million to $600 million for InstaMed, one of healthcare payments’ hottest and highly anticipated deals of that year, PE Hub wrote.
Just a week ago, Bank of America announced its acquisition of Axia Technologies, a healthcare payment and technology startup focused on facilitating secure patient payments.
Lightyear and KKR declined to comment.