Happy Tuesday – we hope everyone had a restful holiday weekend! It’s Isabel O’Brien here with Value Add, a free weekly newsletter from Privitas covering the latest private equity operations news. Here’s what you need to know this week.

Done Deal

Full access. New Mountain Capital agreed to buy Access Healthcare, a Dallas, Texas-based revenue cycle management company for the healthcare sector, at a valuation of $2 billion. According to a press release, the funds will be used to “[advance] its capabilities in artificial intelligence, workflow automation, product development, and expanding into new markets.”

Uphill battle. This isn’t New Mountain’s first foray into the RCM sector. Last August the manager lost a bid to take its portfolio company, R1 RCM, private after having a falling out with co-owner Towerbrook Capital, which was ultimately victorious in acquiring full control of the asset.

New Mountain’s tenure at R1 RCM was a tough one. The company’s stock price plummeted in 2022 after the firm was accused of securities fraud and reported lower-than-expected profits. The following years saw multiple scandals continue to rock the company, from a $45 million fine for breach of fiduciary duty to a massive data breach to accusations of revenue manipulation. 

Do-over? Perhaps New Mountain is looking to do things differently with Access Healthcare. After all, the revenue cycle management space is still red-hot, with relatively low penetration making scale more feasible. 

New Mountain Capital did not provide comment upon request. 

Portco News

PE portcos also saw some full and partial exits last week, as well as some exits-to-be:

• Hg solidified its plans to sell Trackunit to Goldman Sachs’ private equity arm at a valuation over $1 billion, with Hg considering retaining a minority stake. GS initially sold the firm to Hg in 2021 after acquiring it alongside GRO Capital in 2015. Trackunit is a Danish provider of connective software and telematics for the construction industry.
• News broke that TDR Capital is looking to IPO EG Group, a British firm that operates a line of gas stations. Despite its UK roots, the firm will IPO in the US under the name Cumberland Farms, a chain of convenience stores the company bought in 2019, seeking a valuation of $13 billion.

Meanwhile, portco M&A was in full swing:

• Bain Capital’s plans to sell the television audience ratings unit of its portico Kantar Group were made public. The buyer, HIG Capital, is said to be ready to spend $1 billion, though Bain was hoping for $1.2 billion. 
• Data quality and analytics platform Qlik bought Upsolver, a technology-building platform intended for software developers, for an undisclosed amount. Qlik is owned by Thoma Bravo. 
• Thoma Bravo’s Flexera acquired The Spot from NetApp. The Spot is a financial operations software that will complement Flexera’s core service of IT asset management SaaS. Financial terms were not disclosed.
• insightsoftware, a company owned by Hg and TA Associates that focuses on CFO-level software solutions,  bought JustPerform, an enterprise performance management platform, for an unknown amount. 
• Online ticket broker Dice sold its live music events series, Boiler Room, to Superstruct, a music festival operator owned by KKR and CVC, for an undisclosed amount. 
• Capitol Imaging, a radiology group owned by Clearview Capital, aquired seven regional outpatient centers along the coast of the Gulf of Mexico, making 48 total centers under the firm’s ownership, up from just 20 five years ago. The deal, done with DRH & Associates, was for an undisclosed amount. 

And there were some key people moves:

• Sparkling beverage manufacturer Spindrift, freshly acquired by Gryphon Investors at a reported valuation of $650 million, brought on a new CEO, Dave Burwick, who most recently served as the head of Boston Beer. Burwick replaces founder and current CEO Bill Creelman, who will stay on at the company as its chairman of the board.
• KKR appointed Sir Jeremy Darroch to serve as an executive advisor to the firm’s European telecoms business. Darroch previously served as the CEO and executive chairman of Sky for 15 years.
• Manulife Investment Management hired Ryan Hanna, former co-head of the global client group at GCM Grosvenor, to serve as the global COO for private markets.
• Bain-backed ExtraHop, a cloud-focused cybersecurity firm, brought on Rob Greer as its next CEO. Greer joins from Broadcom where he served as general manager of the firm’s enterprise security division. Current chief executive Greg Clark will transition to a new role as the executive chair of the board at ExtraHop.

Hot Take

End of an era. Roll-ups can be nuanced, intricate strategies with real benefits for portfolio companies when designed correctly. Sadly, what we’ve seen is that more often than not, add-on acquisitions act as a lazy maneuver on sponsors’ ends to grab more market share.

I don’t doubt that the motivation behind this is not sinister in nature — I think PE firms genuinely have a desire to enact quick portco expansion without getting into the weeds of organic growth. However, this structural need for speed embedded into the closed-fund system has put the US consumer at an inherent disadvantage — quick portfolio company growth has come at the sake of fair competition.

PE firms don’t go to market with monopolies in mind. They do, however, always go to market with a strategy that prioritizes market dominance and optimized profits. The fact that the Federal Trade Commission has come knocking should come as a surprise to no one.

Bipartisan backlash. Given that a right-leaning Texas judge dismissed the case in May, it’s easy to try and blame the FTC’s actions on an overzealous, left-leaning administration headed by the “anti-business” Lina Khan. No matter what your feelings are on her, the reality of the situation is that as America takes a populist swing, the new Republican administration is poised to take a critical view of private equity roll-ups, too — especially those that result in raised prices or curb free speech.

“That Welsh Carson is a private equity firm is irrelevant; the antitrust analysis would be the same if Welsh Carson were, for example, an individual or institutional investor… Welsh Carson made acquisitions. As alleged in the complaint, those acquisitions demonstrably created monopoly power and Welsh Carson wielded that power to raise prices. That is exactly what Section 7 prohibits anyone from doing,” Andrew Ferguson, Khan’s Trump-appointed replacement, wrote of the WCA&S ordeal.

Scott-free. Given the evidence that Texans overpaid for healthcare services by tens of millions of dollars due to the portco’s raised prices, WCA&S got off relatively easy. The firm won’t have to pay any monetary penalties — rather, it just has to agree to freeze its investment at USAP at current levels and reduce its board representation at the firm to a single, non chair seat. WCA&S will also need to obtain approval from the FTC if it wishes to make investments in anesthesiology in the future. 

With scrutiny of private equity ownership of healthcare assets at an all-time high, the next target of the FTC might not be so lucky. To protect themselves against the federal government’s wrath, perhaps it’d do PE firms some good to take the high road. M&A can offer quick market share, but it comes at the cost of competition. Organic growth is more risky and better for American consumers in the long run. 

More from Privitas

• Small Exits Outperformed Large Ones in 2024 (Read)
• Portco CFOs Key to Successful Roll-Up Strategies (Read)
• Technology: Value Creation 2024 (Read)
• M&A Is Risky, But Operating Partners Choose It Anyways (Read)
• Could Unhappy Employees Be Good For Tech Exits? (Read)

That’s all for this week – thanks for reading. Have questions? Email isabel.obrien@privitas.com