Water Street Healthcare Closes Fund II At $650M Hard Cap

Water Street Healthcare Partners has closed on its second fund, reaching its hard cap of $650 million.

The firm beat its $600 million target for Water Street Healthcare Partners II LP. The Chicago-based shop’s first fund, which closed in 2005, garnered $370 million in commitments.

Investors in the fund are a mix of returning limited partners and fresh capital. Adams Street Partners, Goldman Sachs Asset Management, New York Life Capital Partners and Pantheon Ventures all increased the size of their commitments in Fund II. New to the firm are Soros Strategic Partners LP, Blue Cross Blue Shield of Arizona and Dankse Private Equity, the fund-of-funds vehicle of Denmark’s Danske Bank.

Founded in 2005, Water Street Healthcare was formed by a group of partners that earlier started the health care investment arm of One Equity Partners at JP Morgan Chase. The firm, which tells Buyouts that its first fund is “largely spent,” typically looks for transactions in the $50 million to $500 million value range. It targets six segments of health care: diagnostic devices, medical products, pharmaceutical services, specialty distribution, specialty pharmaceuticals and specialty services.

The health care industry-focused firm has already found its first investment for Fund II. It signed a definitive agreement to acquire Gentiva Health’s CareCentrix ancillary care benefit management business on August 21 in a transaction valued at $147 million. The terms of the deal call for Gentiva to receive $84 million in cash, an interest-bearing note of $25 million, and a 31 percent stake in the capital stock of CareCentrix with an ascribed value of $26 million. The consideration also includes a total of $12 million to be used as capital for investment in CareCentrix and to cover transaction-related costs.

The funding of the deal involves a $58 million equity investment by Water Street Healthcare and $38 million in CareCentrix senior debt. This $96 million figure covers the $84 million cash payment to Gentiva and the added $12 million for capital and deal costs. Water Street Healthcare has said it doesn’t expect to make significant changes to the operating structure of CareCentrix following completion of the transaction, which is expected in the third quarter.

Other portfolio companies of Water Street Healthcare include Access MediQuip, a Houston-based provider of outsourced mangement services for medical implantable devices; Alpine Biomed, a specialty diagnostic devices company headquartered in Fountain Valley, Calif.; Facet Technologies, a provider of blood glucose monitoring and point-of-care testing products based in Atlanta; Physisotherapy Associates, an outpatient rehabilitation services company headquartered based in Exton, Penn.; PLUS Diagnostics, a Lakewood, N.J.-based anatomic pathology company; and Precision Dynamics, a maker of bar code identification wristbands headquartered in San Fernando, Calif.; and Sarnova, a distributor of respiratory and emergency medical services-related products.