Waud Capital in talks to buy Texas Digestive Disease Consultants: sources

  • Sell-side adviser: Nexus Health Capital
  • Only existing investor in GI specialty is Audax, via ’16 recap of Gastro Health
  • Process included potential opportunity to merge with Atlanta GI group

Waud Capital is in talks to buy founder-run gastroenterology group Texas Digestive Disease Consultants, three sources familiar with the matter said.

The anticipated transaction would conclude what sources have described as both a highly competitive and broad sales process for TDDC, which dubs itself the largest independent GI specialty group in the country.

Buyouts initially reported in February that Dallas-based TDDC retained boutique healthcare firm Nexus Health Capital to explore a sale aimed at PE.

It would also mark the second instance of PE investment in the physician specialty, though sources have said a number of additional assets are in the market. Boston’s Audax Private Equity was the first mover in GI through its 2016 recapitalization of Miami’s Gastro Health.

The process was particularly unusual in that TDDC was marketed with an option for buyers to simultaneously acquire and merge the platform with another GI business, Atlanta Gastroenterology Associates, or AGA, sources said.

AGA, for its part, retained Edge Healthcare Partners for financial advice and is pursuing an alternative path, sources said.

TDDC, excluding AGA, expects to generate about $20 million in adjusted Ebitda in 2018, sources said. Including anticipated non-AGA practice acquisitions, run-rate Ebitda approaches the mid-$20 million-range for the trailing 12 months ended in June 2018, they said.

The asset is expected to command a mid-teens multiple of Ebitda, sources added.

Founded by President and CEO Jim Weber, a physician, TDDC offers procedures to treat GI conditions and disorders such as acid reflux, colon cancer, Crohn’s disease and abdominal pain.

The physician practice management group encompasses close to 130 doctors and operates in the Dallas-Fort Worth area, as well as in Houston, San Antonio and Austin.

While GI in general is ripe for consolidation, the scope and expansion of ancillary services is an important driver of profitability for these groups, sources said.

TDDC is considered pretty far ahead of the pack in terms of ancillary offerings, one source noted.

TDDC’ss ancillary services include ambulatory surgery centers or endoscopy centers, pathology services, anesthesia services, infusion therapy services and specialty and retail pharmacy services.

AGA, considered the second largest GI practice in the U.S. after TDDC, encompasses 90-plus gastroenterologists in Metro Atlanta and North Georgia. Co-Founder Steven Morris, a physician, heads up AGA as its managing partner.

Despite the appeal of potential synergies that could be achieved by combining the two specialty groups — both of which sources described as quality assets of scale — constructing and valuing such a deal would face logistical challenges, sources said.

Differences in billing practices, geography and physician-compensation structures, for instance, are all factors to consider, sources suggested.

As the PE community continues to flock to the segment, other buyers in the space to keep in mind are the ASCs, sources said.

KKR’s Covenant Surgical Partners, for instance, owns and operates north of 35 gastrointestinal and ophthalmic ASCs.

There’s also Kelso & Co-backed Physicians Endoscopy, which owns and manages endoscopy surgery centers across the U.S.

Representatives of Waud declined to comment, while those with TDDC, Nexus, AGA and Edge Healthcare didn’t immediately return requests for comment.

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