Marriage of Summit Medical and Warburg’s CityMD is first of its kind

  • Combined company nears $200 mln in pro forma Ebitda
  • Sell-side adviser: Cain Brothers; Buy-side: Evercore; Financing: Credit SuisseWarburg’s
  • CityMD bought Stat Health in ‘19 for almost $100 mln

In combining the New York metro area’s dominant urgent care chain with one of the largest independent multi-specialty groups in the country, Warburg Pincus is on a journey to develop the first integrated delivery of care network of its kind.

Summit Medical Group said last week it would merge with Warburg-backed CityMD. Financial terms weren’t disclosed, but the combined company will approach $200 million in Ebitda on a pro forma basis, a source familiar with the matter said.

It was just over two years ago that Warburg purchased CityMD in a deal valuing the network of walk-in clinics at $600 million. The urgent care platform a year ago scooped up Spano Barber Jesse & Co’s Stat Health Management, acquiring the Long Island chain in a deal valued just south of $100 million, sources at the time said.

The New York buyout shop is injecting significant new capital in connection with CityMD’s latest transaction, with Warburg becoming the majority owner of the new company, the source said.

Existing physician owners at both CityMD and Summit will remain significant shareholders.

While corporate management teams will be combined, CityMD CEO Richard Park and Summit CEO Jeffrey Lebanger will each continue to hold meaningful roles and the brands of both companies will remain intact.

For Summit, based in Berkeley Heights, New Jersey, the transaction concludes a Cain Brothers-run auction that kicked off several months ago.

Evercore provided financial advice to Warburg, while Credit Suisse led financing on the transaction, the source said.

Broadly, specialty and multi-specialty medical groups have fielded significant interest from the private equity community in recent years. At the same time, urgent care companies have increasingly sought out joint-venture partnerships with health systems and hospitals.

But the Warburg-backed combination is unique, as CityMD is the first urgent care provider to merge with a large scale physician-owned multi-specialty group.

By partnering with Summit — whose more than 900 providers offer care across 80-plus specialties and 80-plus locations in New Jersey — CityMD gains an ability to manage all the medical needs of its varying patient populations, while also addressing referral inefficiencies.

CityMD has already created a consumer-facing chain with strong brand recognition in the New York metro area, capturing and helping redefine the primary care market among certain patient populations. In other words, much of the millennial demographic considers walk-in clinics the likes of CityMD as their primary care provider, with medical needs addressed on an episodic basis.

Strategically speaking, the creation of an integrated system offers a means to develop a more seamless method of managing all medical needs among all populations. The new company will now have the ability to treat the more comprehensive and specialty-specific medical needs of patients as they age.

CityMD, which expects to see some 2.7 million patients including about 1.7 million unique patient visits in 2019, will likely make some 400,000 referrals during the year, the source said.

While New Jersey is generally more of a fee-for-service market, Summit is further compelling as it is adept at managing the transition to value-based contracting and reimbursement, the source added.

The combination also makes sense from a geographic perspective. New York-centric CityMD will increasingly bring New Jersey-centric Summit Medical to New York, and vice versa, the source said.

In related activity, Ares Management in August 2017 invested in DuPage Medical Group, the largest independent multi-specialty group in Illinois. The deal was valued at $1.45 billion.

Meanwhile, one of Houston’s largest physician-owned multi-specialty group practices, Kelsey-Seybold Clinic, is currently evaluating its strategic options. The for-profit company is working with Evercore, Buyouts initially reported in December.

Action Item: See Warburg’s latest form ADV: