Veritas Capital was in talks to promote a 50 per cent stake in healthcare expertise firm Cotiviti to non-public fairness large KKR, in a deal that will worth the enterprise at as much as $11bn, based on three folks briefed on the matter.
A deal, which might be clinched within the subsequent few weeks, would return billions of {dollars} to Veritas buyers after an identical deal for Cotiviti fell apart in April when one other bidder, Carlyle, did not provide you with its a part of the funding.
The possible deal comes as personal fairness companies akin to Veritas search for methods to promote down large, profitable investments like Cotiviti and return money to their buyers. Veritas will promote 100 per cent of the corporate from the funds that initially invested in Cotiviti in 2016 and 2018. A more moderen $10.7bn fund that Veritas raised final 12 months would then, in impact, purchase again half of the corporate from KKR, based on sources briefed on the matter.
That would go away Cotiviti roughly half owned by KKR and half owned by Veritas, the sources stated.
The construction is supposed to supply the unique buyers in Cotiviti with a full money return on their funding and keep away from a so-called continuation fund, a novel construction the place a non-public fairness fund sells a stake in a single firm to a brand new car created to carry the funding. These more and more fashionable constructions have confirmed controversial amongst buyers as a result of they’ll create conflicts akin to including further charges for the pensions and endowments that spend money on personal fairness funds.
KKR and Veritas declined to remark.
The deal could not have captivated the market earlier this 12 months if not for the mammoth $5.5bn loan that personal credit score buyers had pieced collectively, which edged out the banks that historically present debt for leveraged buyouts.
The mortgage — the most important direct mortgage then contemplated by the burgeoning personal credit score business — together with a $1bn most well-liked fairness funding and greater than $6bn of recent fairness invested by Carlyle and Veritas would have valued Cotiviti at near $13bn.
A rally in credit score markets this autumn has given Veritas and KKR a larger variety of choices as the 2 personal fairness companies look to finance the transaction. The 2 have sounded out banks and personal credit score funds to finance the debt portion of the deal. Competitors is anticipated among the many two camps given the robust buying and selling exercise in Cotiviti’s excellent loans.
Banks at the beginning of this 12 months broadly stepped again from committing to new leveraged buyouts, with their urge for food dented by fears of an financial slowdown in addition to the uncertainty round how a fast-moving banking disaster may metastasise. Their reluctance to lend meant the business ceded market share to non-public credit score buyers together with Ares, Apollo, Blackstone and Sixth Road.
That urge for food is starting to return as banks look to bolster comparatively modest advisory and lending revenues, and as they develop extra assured that firms and personal fairness teams will be capable to climate a slowdown.