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How TPG’s Mediware won the Kinnser deal

TPG Capital’s bold effort to ensure a clear victory for home-health-software company Kinnser underscores the importance of buyer differentiation in today’s competitive healthcare market.

Preempting what was expected to produce a robust sales process among sponsors, TPG struck a deal to buy Kinnser through Mediware Information Systems. It was only in February that TPG completed its purchase of Thoma Bravo‘s Mediware, an even larger post-acute software provider.

Exiting shareholders include Canada’s Georgian Partners and New York’s Insight Venture Partners. Kinnser CEO and Founder Chris Hester will roll over an equity stake in connection with the deal.

Terms weren’t disclosed in the May 30 deal announcement, but the target was expected to command 17x to 20x its about $24 million of EBITDA, sources familiar with the matter have told Buyouts. That suggests a valuation around $408 million to $480 million.

The William Blair-led auction hadn’t fully gotten underway when TPG bid for Kinnser, one source told Buyouts.

“Due to our thematic focus on post-acute, we had the conviction to move more quickly than others on Kinnser,” TPG Partner Nehal Raj said in an interview. “We had been pursuing the company for several months before the process even started, so we also had a head start on our diligence.”

Having backed Mediware, TPG had the advantage of offering a lot of benefits a stand-alone PE buyer wouldn’t have, Raj said. An established relationship with the target was also an important factor: TPG spent significant time with Hester and the Insight team before the sellers opted to pursue a full-blown process, he said.

“We were able to mutually flesh out what the synergy potential could be on the revenue side,” Raj said. “[Hester] was excited about it. He was an advocate. Insight was the controlling shareholder, but he had an important say.”

Buyouts had reported in April that the Austin, Texas, provider of home-health software had tapped William Blair to run a process. The target’s strong growth profile, leadership team and an in-vogue end market — post-acute care — were expected to draw significant PE interest.

Regardless of potential healthcare reform, patient volume is anticipated to continue to move toward alternate sites of care, which are much more efficient and less costly than hospital settings.

“Given our thematic interest in the space, we evaluated a number of investment opportunities before deciding that Mediware was the best starting point for our platform strategy,” Raj noted.

For Mediware, Kinnser is a natural fit. The software-as-a-service provider already plays in several post-acute verticals, but not in the home health and hospice markets in which Kinnser concentrates.

“We had pursued Kinnser prior to that, just not knowing how the pieces would fit together,” Raj said. “We were fortunate we got Mediware first, which is much larger. Kinnser became much more feasible.”

Once the Mediware deal was done, Kinnser became a top priority, Raj said. “It’s scale. We’re buying a full-blown company that really moves the needle.”

Fusing the two companies will create what Raj deems the largest software player focused on the alternate-site care market. By combining organic growth and acquisitions, Raj sees a credible path to exceeding $200 million to $250 million of Ebitda over time.

While TPG moved quickly to preempt the Kinnser process, Raj said the approach doesn’t indicate a trend.

An active buyer in healthcare IT, TPG has differentiated itself in other ways. While the firm’s technology and healthcare teams collaborate in a joint-venture manner when pursuing deals in healthcare IT, it often competes with tech-only or healthcare-only teams and firms, said Raj, who leads tech investments for both TPG Capital and TPG Growth.

B of A Merrill Lynch and SunTrust Robinson Humphrey provided financial advice to TPG and Mediware, while Ropes & Gray offered counsel. Willkie Farr & Gallagher provided legal advice on the sell side.

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Nehal Raj, partner at TPG. Photo courtesy of the firm.