Warburg Pincus-backed Qualifacts has joined forces with Martis Capital’s Credible Behavioral Health in a push to become the first nationwide electronic health record platform specializing in behavioral health.
Qualifacts CEO David Klements will lead the combined company, while Credible’s CEO Matthew Dorman will continue as a strategic advisor to the company.
Both Warburg and Martis hold meaningful stakes following the deal, which closed on Friday, Klements said.
The merger comes about a year after Warburg prevailed in the auction for Qualifacts, providing an exit for Great Hill Partners. Warburg’s investment valued the Nashville-based company near $350 million, sources told PE Hub at the time.
Martis, around the same time, closed its minority recapitalization in Credible, through which Goldman Sachs Merchant Banking exited its investment
This time around, the deal came together on a one-off basis outside of a sale process, as there was already a good sense of valuation following Martis’ recent investment.
“Matt [Dorman] and I have known each other for a long time,” Klements said. “The Warburg guys were interested in the Credible transaction the first time around and we strongly believed that that combination would be terrific for the companies. So we persisted.”
Underlying macro drivers and a large market opportunity ahead presented an attractive case for a combination of two companies, according to the CEO.
“First and foremost, as a result of the pandemic, the behavioral health industry is exploding,” Klements said, speaking to both the industry’s increasing destigmatization and general growth in awareness of the need for addiction treatment and health services.
Qualifacts, for its part, saw its customers’ volumes initially down in the 20 percent range after the crisis broke, but levels have started to rebound to nearly pre-pandemic levels, he said. That’s in part because behavioral health, more than many healthcare specialties, is particularly conducive to virtual care, he noted.
Another catalyst for the deal: EHR in behavioral health remains very fragmented, partly due to the fact that each state has its own regulatory and compliance requirements, the CEO explained. “It’s expensive and operationally challenging to create a single company that operates in 50 states.”
The newly-married company serves between 900 and 1,000 behavioral health agencies nationwide, with more than 100,000 therapists at all levels using the platform, Klements said.
“Combined, we’re still at around 10 percent market share,” Klements said. “Putting together the two will essentially allow us to accelerate to become the first national platform.”
That said, Qualifacts is not interested in doing a roll-up of a dozen or so different companies. “This brings together two true SaaS platforms; two companies with good growth rates and good customer retention. This is a very intentional merger.”
Potential M&A would, like Credible, be pursued as a means to acquire additional customers, not additional tech; enter new adjacencies within the whole behavioral healthcare umbrella; or to tuck-in a product or function.
Warburg portfolio collab
Warburg, for its part, is an experienced investor in specialty EHR.
In fact, Qualifacts is joined by similar portfolio companies tailored to other healthcare specialties including WebPT, Modernizing Medicine and Experity Health.
Despite their relevance, Warburg has no intention of pursuing any sort of combination between any of the four specialty EHR investments, sources told PE Hub in September.
That said, Qualifacts has benefited from the ability to collaborate with those companies, both from a product investment and innovation perspective, according to Klements.
As an example, Qualifacts post-transaction will need to focus on its branding strategy as the separate companies have existing reputations in the market.
“Experity just merged two EHR practices and went through the exact same thing. Being able to talk to them … and [discuss] the pros and cons of the different options will give us valuable insights we wouldn’t have otherwise had,” Klements commented.
Orrick and KPMG advised Warburg and Qualifacts on the deal, while McDermott Will & Emery, Cooley, and PWC advised Martis and Credible.
Action Item: Read more on Warburg’s $675 million bet for WebPT last year.