At least 3 co-invest with Blackstone in Team Health deal

Blackstone initially considered investing out of its long-term fund, Blackstone Core Equity Partners, instead of its seventh buyout fund.

Blackstone has closed its acquisition of Team Health Holdings, with capital from co-investors including Caisse de dépôt et placement du Québec (CDPQ), Public Sector Pension Investment Board (PSP) and the National Pension Services of Korea, in a deal worth about $6.1 billion, Team Health said on Monday.

Blackstone, which previously owned the company from 2005 until its initial public offering in 2009, invested out of its flagship fund Blackstone Capital Partners VII, which had closed on $18 billion in December 2015.

However, a December regulatory filing from Team Health with the Securities and Exchange Commission shows that it initially intended to invest out of the Blackstone Core Equity Partners.

BCEP, which began fundraising in early 2016, is the first investment vehicle for Blackstone that has a flexible investment holding period, which traditionally lasts three to five years in private equity. The $5 billion fund has an investment period of at least 15 years.

The regulatory filing indicates that investment bank Goldman Sachs contacted Blackstone – which had shown interest in a transaction with Team Health in late July – to explore Blackstone’s interest in an acquisition on 9 August.

Later that month, Blackstone began its due diligence process on Knoxville-based Team Health, which provides outsourced medical services through more than 20,000 affiliated physicians and clinicians.

On 24 August, Blackstone submitted a proposal to acquire the medical company at a range of $48 to $50 per share, and revised it to $50 per share the following month, the SEC filing said.

However, on 22 October, Blackstone came back after weeks of due diligence process with a new offer of $43 per share, citing Team Health’s reduced earnings forecast for the second-half of 2016, among other issues it claimed to have found during due diligence.

On that same day, Blackstone also changed the financial sponsor of the proposed acquisition to BCP VII, and stated it expected to invite certain LPs in that fund for co-investment. The filing did not specify the reasons for the change of vehicle.

Within a week, the private equity giant also increased its offer by 50 cents, to $43.50 per share, which was the final agreed-upon price for the acquisition that closed on Monday.

The same December SEC filing indicated that BCP VII would contribute $2.7 billion of equity – which includes co-investment capital from the three LPs – to this deal, which would also include debt financing of up to $4.02 billion from various creditors. It’s not clear the exact amount of equity provided by each party.

At press time, Team Health declined to comment. CDPQ, PSP, NPS and Blackstone were not available to comment.

This is not the first time CDPQ and PSP have co-invested in a deal together. In November, the two Canadian LPs, along with Bahrain-based investment firm Investcorp Group and Jay Alix, founder of AlixPartners, acquired a minority stake in Alix’s firm from CVC Capital Partners, as reported by PEI.

Although BCEP passed on this investment, it made its first acquisition last month in music rights organisation SESAC Holdings from private investment firm Rizvi Traverse Management, as reported by PEI.

Québec City-based CDPQ manages C$254.9 billion ($196 billion; €176 billion) in assets as of 30 June and invests on behalf of pension and insurance plans. PSP, based in Ottawa, has C$125.8 billion in assets as of 30 September, and Seoul-based NPS has $466 billion in assets as of 30 November.