Behrman Adds To Tandem, Considers Exit Strategies –

In a transaction that closed with the month of April, Behrman Capital tacked another addition to its Tandem Health Care Inc. platform. For an undisclosed amount, the New York-based private equity firm acquired 15 nursing care, assisted living and independent living facilities from Diakon Lutheran Social Ministries. The newly acquired facilities are based at nine locations, eight of which are in Pennsylvania, the remaining one in Maryland.

Merrill Lynch and LaSalle Bank provided an undisclosed amount of debt financing for the transaction.

Diakon provides retirement, health care and family services in Pennsylvania, Maryland, and Delaware. Behrman was approached more than six months ago by Tandem’s management regarding the transaction-which was advised on the sell-side by Legg Mason. In a statement, Diakon said Tandem was one of a “range of potential buyers” considered for the assets.

“The strategic rational is that these properties have high occupancy rates, they own their facilities and they represent a good opportunity to geographically leverage Tandem’s strong regional growth strategy,” Grant Behrman, a managing partner at Behrman Capital, told Buyouts. Other factors that make healthcare an attractive space right now, he added, include improvements in professional liability due to tort reform, increasing patient acuity and stability in both wage rates and reimbursement.

Maitland, Fla.-based Tandem was founded in 1997 and acquired by Behrman in 1998 in a transaction that included a $30 million equity investment. The company is focused on creating regional networks of healthcare providers in markets such as short-term transitional care, long-term nursing care, Alzheimer’s care, assisted living, rehabilitation, mobile diagnostic imaging and hospice services. Today, Tandem has annual revenues of approximately $530 million.

Rev. Dr. Daun E. McKee, Diakon’s president and CEO, said in a statement that the rational behind the divestiture was survival. “Diakon has the capacity to be successful in operating either freestanding health care facilities or retirement living campuses designed to meet the range of needs of older adults. Unfortunately, we cannot do both and be successful in the long term… For that reason, and after long and careful study, we made the decision to sell the freestanding facilities.”

The terms of the deal state that Tandem will continue to employ the facilities’ 1,200-plus existing staff members, though the sale will result in the elimination of approximately 50 staff positions within Diakon’s support operations. Tandem also agreed not to cut any of the services offered by the Diakon facilities for at least two years-by which time Tandem will likely have a new ownership.

Behrman said the firm is currently considering two exit options for Tandem, the first being an IPO that, if followed through, would likely be held within a year. The second option, which has a more opportunistic timeline, is to sell the company to real estate investors that have expressed an interest in the sector, he said.

To acquire Tandem and its subsequent add-ons, Behrman tapped Behrman Capital II LP, a $518 million buyout fund that closed in January 1998. Fund II has since been closed to platform investments and is used to provide add-on and growth capital funding to its existing holdings. For new platforms, Behrman is making use of its $1.2 billion Behrman Capital Fund III LP, which closed in 2000.


Target: 15 healthcare facilities

Buyer: Behrman Capital

Seller: Diakon Lutheran Social Ministries

Financial Advisor: Diakon: Legg Mason

Legal Counsel: Behrman: Buchanan Ingersoll PC; Diakon: Stevens & Lee PC