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Scoop: Varsity Healthcare Partners rakes in $600M-plus for Fund 4

Oct 18, 2022
Illustration of a handshake with shapes and zoomed in photos of dollar bills.

Illustration: Gabriella Turrisi/Axios

Varsity Healthcare Partners held a first close for Fund IV in recent weeks, surpassing its $600 million target, sources tell Axios.

Why it matters: Private equity firms have experienced a fundraising traffic jam the last several months and the market could remain challenging into 2023 if economic turbulence persists, but pockets of U.S.-based health care are still garnering strong LP interest.

Zoom in: LPs are distributing more capital across fewer funds in health care, Preqin data show, pointing to a bifurcation in quality as LPs get pickier about which GPs they put their money behind.

  • Year to date, 71 U.S.-focused health care funds have raised an aggregate of $23.3 billion, according to the data.
  • 2021 closed the year with 111 new health care funds raising just $18.3 billion combined, while 2020 finished with 77 funds totaling $17.4 billion, per Preqin.

The big picture: The fundraise caps off a busy year for Varsity — as both a buyer and a seller — all while the lower-middle market firm has grown its roster and physical footprint.

  • In August, Varsity completed its minority investment in Aspirion, supporting Linden Capital Partners' majority acquisition of the revenue cycle management specialist. The deal commanded a $650 million to $700 million valuation, Axios reported.
  • In March, Varsity sold Probo Medical, a provider of refurbished medical equipment and parts, to Avista Capital Partners at an approximately $450 million EV, Axios wrote.

Yes, and: In September, the PE shop hired former Cressey & Co. partner Merrick Axel as a partner to head up a new Chicago office.

  • It also grew its bench of operating partners, hiring Rosemary Free, former CFO of Vision Innovation Partners; Jay McKnight, former Diversicare Healthcare Services executive; and Robert McElherne, former Humana executive.

Flashback: Varsity's third fund closed on $417 million in August 2019; Fund II collected $300 million; and Fund I closed on $240 million. Context: Varsity invests in multi-site health care providers and businesses providing outsourced services and technology to providers and payers.

  • The PE firm has a buy-and-build playbook, targeting primarily control investments.
  • It typically writes equity checks in the $30 million to $100 million range but can go up in size with co-investment partners.

👀 What we're watching: As a backlog of middle-market firms gears up to fundraise, could that force more near-term health care deal activity as firms consider exits to give LPs a return — before asking them to re-up? Varsity Healthcare Partners could not be reached.

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