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Private equity sponsors are finding creative ways to get health care deals done, in the midst of a muted market, Vesey Street Capital Partners managing partner Adam Feinstein tells Aaron.

This interview was lightly edited for length, style and clarity:

How do you characterize today's deal structures?

Groups are using less leverage and owners of the business are rolling over additional equity so that the equity checks can be smaller. I think this pattern will continue for the next couple of years.

In the past, there could be ways you could financially engineer your way to a great outcome by putting 7x to 10x leverage on the deal, but those opportunities are going to be hard.

A lot of the transactions we are seeing today were very prevalent back in 2006 and 2007. After the great financial crisis, more deals were being completed where there was only one firm involved.

What are some sub-sectors of health care you're investing in and why?

We like health care logistics and distribution businesses, as there are a lot of challenges in these areas which really came to the forefront during COVID. Every health care organization — hospitals, physicians, pharmacies, they're all looking for more and more help.

We're doing a lot of work in areas that deal with the health care supply chain, drug, and medical supply distribution companies.

Utilizing technology to help, while also not displacing clinicians, is very prominent today, and so there is a very big demand for companies that can help around health care labor.

We're not necessarily looking to invest in the traditional larger staffing companies, but we're looking for more specialized staffing plays that provide labor to other parts of the market.

How have you seen strategic buyers behave in the current market?

Strategics are more open to partnering with private equity firms than ever before, and it's a function of the institutionalization of the private equity industry. Not to mention, it's great for both parties. The strategic gets a toe in the water while the private equity firm can do a lot of the real heavy lifting.

Being seen as a strategic partner to these organizations means you're having a very particular sort of dialogue.

🍕 One fun thing: A pizza aficionado, Feinstein's favorite NYC slice is Una Pizza Napoletana and his favorite overall 'za is from DeLorenzo's Pizza in Trenton, NJ.

1 big thing: Talking with Vesey Street's Adam Feinstein

Photo illustration of Adam Feinstein, managing partner of Vesey Street Capital Partners, set next to a graphic waves image and shapes

Photo illustration: Annelise Capossela. Photo: VSCP

InTandem Capital Partners has acquired OrthoNebraska, a musculoskeletal care provider with 10 locations, with plans to roll up a fragmented industry.

Why it's the BFD: Musculoskeletal care spending is $381 billion annually in the U.S., and will continue to grow as the population ages.

By the numbers: OrthoNebraska is generating nearly $30 million of EBIDTA, up from $11 million last year, sources tell Aaron.

InTandem paid a multiple of around 12x, implying a valuation above $350 million, per the sources.

The firm declined to comment on terms or financials.

Details: Goodwin Procter served as legal counsel for InTandem, and Houlihan Lokey served as the financial adviser.

Quadriga Partners served as financial adviser and Koley Jessen as legal counsel for OrthoNebraska.

Audax Private Debt participated as a joint lead arranger.

What they're saying: "During our diligence process, it was clear to us that OrthoNebraska had established itself as the brand of choice for orthopedic services in the greater Omaha region," InTandem Capital principal Evan Brower says.

"Organically, we are already seeing great traction, having hired six new physicians in the first half of the year with several more joining in the coming months," he says.

What's next: The firm will look to capitalize on the fragmented nature of the MSK industry through strategic add-ons and de-novo unit openings, Brower says.

Most providers are independent and are looking for a capital provider to help expand service lines, he explains.

The company offers non-operative pain management, physical therapy, hand therapy, orthopedic urgent care, emergency services, imaging and surgical services.

2. The BFD: InTandem goes to Nebraska

Illustration of a spine with the vertebrae made out of dollars.

• TytoCare, a New York-based virtual home care company, raised $49m, bringing its total capital raised to $205m. Insight Partners led, and was joined by MemorialCare, Healthcare of Ontario Pension Plan and Clal. https://axios.link/43RR83p

• AMOpportunities, a Chicago-based clinical training startup, raised $2m in Series A extension funding from new backers Laerdal Million Lives Fund and LAGO Innovation Fund. www.amopportunities.org

• Saalt, a Boise, Idaho-based menstrual care startup, is raising a seed round, per Axios Pro Retail Deals. https://axios.link/449aQbf

• Juul, the vaping company once valued at $38b by Altria Group (which has since divested), is seeking to raise around $1b in new funding, per Bloomberg. https://axios.link/43RGidJ

• Health Connect America, a Franklin, Tenn.-based portfolio company of Palladium Equity Partners offering programs for grief, anger management, family issues and substance use, acquired Specialized Youth Services of Virginia, a Petersburg, Va.-based private day school. www.healthconnectamerica.com

3. Deals o' the day

• Aashish Mody stepped down as president of Neurotrack to become CEO of Spire Labs.

• Kristina Omari stepped down as EVP of finance at Everly Health to become CFO at Wheel.

• Ryan Waring stepped down as VP of financial planning at Tebra to take the same title at Miovision.

• David Markman is becoming an operating partner at ARPA-H. He previously was VP of strategic partnerships at The Public Health company.

• ShiftKey added several board directors: Ex-Athenahealth CFO Luis Borgen, Lightspark SVP James Everingham, Southwest Airlines CEO Bob Jordan, and Sanger Holdings managing partner Bill Sanger.

• Nate Sternberg left a post as marketing data and analytics lead at Wisp to become director of data analytics and biz ops at AvoMD.

4. It's Personnel

🤰 Giving birth in the U.S. continues to get deadlier — Axios

⚕️U.S. sues UnitedHealth over denied claims — Modern Healthcare

5. Your daily dose

Illustration of a weekly pill dispenser box with a newspaper called "daily dose" in each compartment.

💃🏻 Erin biked to yoga and back and did a revolved dancer's pose in class after three years of no such standing poses.

💝 Thanks for reading, and extra thanks to newsletter editor Dan Primack and copy editor Mickey Meece. Please ask your colleagues, friends and family to sign up.

August 03, 2023

1 big thing: Talking with Vesey Street's Adam Feinstein