Varsity Healthcare nears deal for Orthopaedic Institute

Varsity Healthcare Partners is poised to be one of the first movers in the orthopedic-services segment as it nears a deal for the largest provider in the north central Florida region, Buyouts has learned.

The lower-middle-market PE firm is approaching the recapitalization of Orthopaedic Institute, a Gainesville, Florida, provider of orthopedic services and ancillary offerings, according to people familiar with the matter.

The people described the transaction as a growth-capital partnership. Varsity plans to partner with Orthopaedic Institute’s founding MDs to expand the group’s clinical footprint and consolidate independent orthopedic capacity across the state, they said.

The institute is receiving financial advice from Houlihan Lokey & Co on the transaction, the people said. The provider of musculoskeletal care generates EBITDA in the low teens, they said.

Orthopaedic Institute encompasses six locations and two outpatient surgery centers in north central Florida. The group’s services include general orthopedics, sports medicine, diagnostic and interventional radiology, primary care orthopedics, occupational medicine, surgical procedures and more.

Orthopedic services, like other niche physician areas including urology, has remained largely untouched by PE. In one comparable transaction, Frazier Healthcare Partners and Princeton Ventures invested in CORE Institute earlier this year.

Musculoskeletal care is viewed as having tremendous runway for growth, driven largely by attractive demographics. A growing older population means increasing demand for treatments for back pain as well as surgeries for knee and hip replacements. At the same time, younger active people will need treatment down the road for acute and chronic conditions resulting from exercise and sports injuries.

The ownership of outpatient surgery centers also offers cost and patient care benefits.

For Varsity, the anticipated deal for Orthopaedic Institute is akin to its previous plays in eye care and dermatology, as one of the first investors in both specialty areas.

The firm earlier this year sold EyeCare Services Partners to Harvest Partners just three years after its investment in the ophthalmic-services provider. Terms weren’t disclosed, but ESP is said to have commanded a mid-teen multiple of its at least $22 million in projected run-rate EBITDA for 2017.

The firm was also one of the earliest investors in dermatology services through its 2014 deal in ForeFront Dermatology. Varsity sold Forefront to OMERS Private Equity in February 2016, garnering a 14x to 15x multiple of EBITDA, sources said at the time.

Varsity, with offices in Los Angeles and Stamford, Connecticut, is investing out of its Fund II, a $300 million pool that closed in January.

Representatives of Varsity Healthcare and Houlihan Lokey did not return calls on Friday.

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