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Apollo backs GI Alliance's physician-led buyout

Sarah Pringle
Aug 19, 2022
Illustration of an x-ray of a stomach showing dollar bill signs.
Illustration: Aïda Amer/Axios

GI Alliance's physician owners are buying back the minority equity stake held by Waud Capital Partners as part of an Apollo-backed physician buyout that values the gastroenterology organization at $2.2 billion.

Why it matters: While private equity has long flocked to (and put significant capital to work in) physician specialties like GI, this deal underscores physicians' strong desire to maintain greater independence and control.

Details: The investment amount wasn't publicly disclosed, but Apollo tells Sarah the firm is making a $785 million non-control preferred and common equity investment through its Hybrid Value strategy.

  • The Hybrid strategy gives Apollo a unique advantage in this instance, and broadly, adds Jason Scheir, partner and head of U.S. Hybrid Value: "There's nowhere near the amount of capital to do these types of deals as there are interesting opportunities."
  • The strategy often invests in companies that want equity-like capital and advice, but don’t want to sell control – something that resonates with many health care provider groups. Plus, the structured solutions offer more operational flexibility than restrictive debt.
  • Apollo's Scheir and Anton Finucane-Courreges will join the GI Alliance board of directors.

Advisers: Houlihan Lokey advised Apollo, Jefferies advised GI Alliance and its shareholders, and Greenhill & Co. advised management and physician owners of GI alliance.

  • Blackstone and Ally are leading committed debt financing for the transaction.

Zoom in: GI Alliance physicians previously had a 70% economic stake in the company, but they did not have governance control.

  • In buying out Waud, GI Alliance's doctor-owners regain governance control while inheriting the benefits that come with having a financing partner via Apollo — access to capital and strategic guidance to propel growth.

What they're saying: GI Alliance CEO James Weber tells Sarah the deal presents the "best of both worlds" in gaining "the backing of all the resources that Apollo has to offer, but allowing us to run the business."

  • As a physician-led organization, Weber believes the company will have more optionality in how it wants to grow and can present a much more appealing partnership opportunity to practices traditionally "on the fence" when it comes to PE ownership.
  • In fact, in buying out Waud, GI Alliance physicians are expanding on their already 70% economic stake.

Context: The GI Alliance deal looks a lot like that which Apollo Hybrid supported in February 2021 for U.S. Acute Care Solutions, a physician-owned emergency medicine, hospitalist and observation services organization.

  • Apollo invested up to $470 million of preferred equity in USACS, allowing it to remain majority-controlled by its physician owners while providing an exit for minority shareholder Welsh, Carson, Anderson & Stowe.

Of note: A USACS physician sits on the board of GI Alliance.

Catch up quick: Waud Capital in 2018 invested in what was then known as Texas Digestive Disease Consultants, forming GI Alliance and representing one of private equity's first forays in the physician specialty (alongside Audax's recap of Gastro Health).

  • GI Alliance's network has grown to 688 independent gastroenterologists in 15 states, from 158 physicians at the time of Waud's investment.

Behind the scenes: The deal with Apollo concludes what was about a year-long process in which GI Alliance evaluated various types of transactions, Weber says.

  • That included conversations with strategics and mega-cap funds interested in a more traditional deal structure.

The bottom line: As physician alignment and autonomy remain a leading issue when it comes to private equity's involvement, more GI Alliance-like models could start to shake up the typical investor playbook.

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