Varsity Healthcare-backed DuvaSawko unites with Abeo

Marking its fourth investment of the year, Varsity Healthcare is backing the marriage of two healthcare revenue cycle management businesses with future add-on opportunities to follow.

Varsity Healthcare Partners’ DuvaSawko has joined forces with Abeo, creating a combined revenue cycle management services provider serving both emergency medicine and anesthesia practices. 

DuvaSawko’s merger with Abeo provides an exit for Parthenon Capital, whose investment in the Dallas-based business dates to January 2008. 

Abeo offers RCM and other technology solutions for independent anesthesia practices, whereas DuvaSawko provides similar offerings tailored to the emergency medicine end-market. 

The newly combined business produces approximately $30 million of EBITDA, a source familiar with the matter told PE Hub. 

For Varsity, which originally backed DuvaSawko around November 2019, the deal marks the firm’s fourth investment this year so far. The healthcare-focused private equity shop contributed additional equity to complete the transaction with Abeo, with Twin Brook Capital providing financing to support the acquisition. 

DuvaSawko and Abeo operate in what remains a highly fragmented industry, with tremendous runway for growth and consolidation across the healthcare RCM universe. By achieving scale, such businesses can benefit from shared sales resources and pricing creativity, all the while enjoying the benefits of diversification across multiple provider verticals. 

Varsity has committed future equity capital to fund additional acquisitions that diversify the platform from a service or technology perspective. The PE-backed RCM business will explore opportunities to grow into other end-markets such as orthopedics and radiology, the source said. 

Abeo’s existing CEO Michael O’Boyle will act as CEO of the combined entity, while management of DuvaSawko will be retained and remain meaningful shareholders in the combined company. 

The leadership teams of the pair of businesses knew one another prior to the deal and both wanted to grow, laying a foundation for deal conversations, the source said. Varsity’s original investment in DuvaSawko last year originated from the firm’s investment experience in the end-market in which it plays – having invested in Emergency Care Partners in 2018. 

Houlihan provided financial advice to both DuvaSawko and Varsity on the transaction, while Kirkland & Ellis provided legal advice. 

For Parthenon, a mid-market-focused firm with offices in Boston and San Francisco, the deal comes nearly 12 years into its investment in Abeo. The firm simultaneously merged three RCM companies focused in anesthesia in January 2008 to create Abeo, subsequently adding Pasadena Billing Associates in October of that year. 

While this time around the deal came together outside of a sale process, Parthenon previously ran a formal process for Abeo in early 2018, PE Hub wrote in March of that year. 

For Varsity, Abeo continues what has marked a busy year of investment through the pandemic. 

Prior to Abeo, the firm in 2020 closed on investments in EmergencHealth, a provider of anesthesia services; Surgical Affiliates Management Group Inc, an independent provider of outsourced trauma services; and Partners First Cardiology, a cardiology and cardiovascular physician practice management company. 

Varsity invested in all four companies including DuvaSawko-Abeo out of its third fund, which closed on its $417 million hard-cap in August 2019.