Happy Thursday, everybody!
What’s everyone getting up to this Memorial Day weekend, quarantine style? With New York beaches shut down, I may meet a couple friends for a safe and socially-distanced outdoor gathering, hop on the bike and search for more home improvement projects.
Quick request for all PE Hub readers: We’re building a database of all PE-backed companies fighting covid-19. Have any of your portfolio companies retooled their daily operations to help flatten the curb? Drop me a line with the company name, PE firm and how have they have altered things.
New auction alert: Francisco Partners’ QGenda, in the business of helping doctors with various scheduling processes, is just kicking off its sale process, I learned. Read more.
This week proved that not all PE firms in today’s environment are postponing exits.
Clayton, Dubilier & Rice quietly exited its investment in naviHealth, with UnitedHealth Group’s Optum unit swooping up the company, whose tech-enabled tools and services help healthcare providers reduce the costs associated with post-acute care.
Although CD&R did not return requests for comment, and Cardinal Health, naviHealth’s minority owner, declined to comment, an Optum spokesperson confirmed the deal.
The New York firm scored a 2.5x multiple of invested capital on naviHealth less than two years into its investment, I learned. Check out my full story.
What led to the quick flip is unclear, but I’m wondering, are there any implications of exiting within the three-year window?
Performance fees on short-hold investments are charged at an ordinary income tax rate that can go as high as 37 percent. Carry from investments exited after holds of three years or more are charged at the capital gains rate of 20 percent.
That said, my colleague Chris Witkowsky reported earlier this year that one of the most negotiated fund terms (prior to the downturn) involved GPs building in the right to waive performance fees on investments they sell after holds of under three years. The idea is to push carry off the short-hold exit and onto later exits in the fund where they can make up the carry.
What I also don’t know is where exactly CD&R’s and Cardinal Health’s respective stakes in naviHealth stood at the time of the Optum deal, and whether that matters. What you think, readers?
In the August 2018 deal, CD&R snapped up a 55 percent stake in naviHealth, while Cardinal (which had bought the company in 2015) retained its remaining stake with an option to buy back all of naviHealth in five years.
At the time, CD&R told me that large corporations like Cardinal — one of the world’s largest distributors of pharmaceutical and medical products — have acknowledged that assets closer to their core strategy require more focus internally and they don’t have the personnel to maximize the value of emerging areas. CD&R, in turn, allowed Cardinal to share the capital burden and operational risk.
“Cardinal will have to be in those places over time, and I think they recognize that’s the case,” CD&R’s Ravi Sachdev said at the time. “But they’re not going to own all of that execution. These spaces are so nascent … They’re not big enough contributors within the whole, yet, to say ‘I have to own it [all] today.’”
Outside of naviHealth, the pool of post-acute benefit management companies includes eviCore, now a unit of Cigna-Express Scripts, WindRose Health Investors’ myNEXUS, Summit Partners’ CareCentrix and Remedy Health, which New Mountain Capital merged with fellow portfolio company Signify Health in 2019.
One of those, CareCentrix, was thrown a wrench not too long ago. Shortly after its own sale process seeking more than $1 billion shut down, the company lost its largest customer, Cigna. Why? Unforeseen circumstances: Express Scripts snapped up eviCore for $3.7 billion at the end of 2017, following which Cigna and Express Scripts married in a $67 billion deal.
CareCentrix recently acquired Turn-Key from Consonance Capital, which appears to give it another product to sell broadly.
Although one source said the covid situation is delaying most productive new sales launching generally, a CareCentrix representative told PE Hub the company implemented with two new health plans and renewed another all within the past 30 days. The spokesperson said that the company is not delaying any productive new sales launching.
Physician consolidation: The value of joining a private equity-backed practice group versus remaining a sole practitioner is evident with lockdowns causing greater strain on companies without broader support, according to Stephen Cella of Sun Capital. Read more.
Deals: In an all-equity deal, Archimed took a 75 percent stake in ActiGraph, which provides wearable, remote monitoring of mobility and sleep for drug trials. Edgemont Partners advised ActiGraph. Elsewhere, Bain Capital Double Impact invested in Broadstep Behavioral Health, a provider of programs and services to individuals living with intellectual, developmental or behavioral disabilities. Read our brief.
That’s it for me today. Have a safe and fun Memorial Day weekend, and in the meantime, hit me up at firstname.lastname@example.org with tips, feedback or just to say hello.
Update: This story has been updated to include a comment from CareCentrix.