GTCR Sells LifeCare To Carlyle Group –

There are several reasons why the healthcare sector is so hot right now-the aging baby boomer population, advanced medical technology and even new medical research. Investors have a steady eye on this trend. That’s why, when GTCR Golder Rauner LLC decided to exit LifeCare Holdings, Carlyle Group was waiting in the wings to pick up where GTCR left off.

GTCR agreed to sell LifeCare, after seven years of ownership, to the Carlyle Group for $555 million.

LifeCare, headquartered in Plano, Texas, operates 21 long-term, acute-care hospitals totaling more that 1,000 beds, with facilities nationwide. Its hospital network focuses on patients who require extended treatment due to serious medial conditions.

Since GTCR’s 1998 investment in LifeCare, when it partnered with the management team of the company to invest in the recap of a smaller group of hospitals, LifeCare’s revenue has skyrocketed, going from $50 million to $335 million during the 12 months ended March 31.

The overall economic growth of the company has made it, seven years later, an attractive candidate for sale. Despite the continuing success of the company, GTCR felt that it was important to pursue an exit.

“It was a seven-year-old investment and we held onto it for a pretty long time as is,” said Ned Jannotta, a principle at GTCR. “The business has performed extremely well particularly over the last three years. The fund that it came out of, GTCR Fund V, is close to a nine-year-old fund and our investment had appreciated very substantially, so it was time to realize on that value. I think it’s going to be a very good opportunity for Carlyle, but it was just time for us to turn our appreciation into cash.”

GTCR initially contacted UBS to sell the company last year, but ultimately decided not to follow through with the process at the time. According to Jannotta, GTCR “re-engaged with Carlyle this year and it was primarily a negotiation between us and Carlyle.”

Though financial terms of the transaction were not disclosed by either firm, Moody’s Investor Service reported that the deal was valued at $555 million, with $169 million in equity contributed by GTCR. J.P. Morgan Chase & Co. arranged the $480 million debt financing. There will be a $255 million term loan B, a $75 million revolving credit facility and a proposed $150 million issue of senior subordinated notes.

Though Jannotta would not comment on the deal terms, he did say that “the deal was an extremely attractive transaction for us in terms of interim rate of return and multiple on our money.”

GTCR has always had a particular interest in the healthcare sector. According to Jannotta, GTCR has a lot of experience in the healthcare industry after investing in it for more than 20 years.

“We expanded the business very substantially in terms of geographic presence, brought in some additional management over time to help drive the financial performance of the business, worked with the management team to position the business as well as possible for the change and reimbursement rules two-and-a-half years ago and worked closely with the management team in the end to realize the company value,” he said.

The management that Jannotta speaks of will be changed up a bit with Carlyle’s acquisition of LifeCare. Tom Erickson, former CEO of LifeCare decided that he did not want to continue on. Carlyle is bringing in Earl Reed to replace him. Other than that, Carlyle plans to keep most of the current management.

According to Chris Ullman, spokesman for Carlyle, the firm anticipates expanding operations over time through acquisitions and increased activity in the sector.