Trend Watch: Partnerships Between Corporations and Private Equity

Recently, several transactions were announced in which corporations and private equity firms partnered to acquire companies jointly. The targets for these transactions are often, but not exclusively, carveouts from other large corporations. In a dramatically subdued transaction environment, these sorts of opportunities offer many unique attributes, not the least of which is the potential to affect a transaction on a bilateral basis. While these transactions are highly structured, one relatively consistent theme is the private equity firm taking a majority position allowing the corporation to avoid consolidating the target in its financial reporting.

Recent transactions include:

• TPG and AmerisourceBergen jointly acquiring OneOncology from private equity firm General Atlantic. TPG will acquire a majority interest in OneOncology in a transaction valued at $2.1 billion with AmerisourceBergen owning 35%. The transaction carries certain put/call arrangements which, if exercised, would result in AmerisourceBergen owning 100% of OneOncology after an initial investment period of three years. The investment will provide AmerisourceBergen with a window into the provision of oncology services through one of the largest oncology practice management platforms in the U.S.
• Cardinal Health contributing its Outcomes business to Transaction Data Systems (“TDS”), a portfolio company of BlackRock Long Term Private Capital and GTCR. Cardinal will retain a minority stake in the combined entity. The combination will enhance TDS’ digital capabilities in the areas of patient engagement, virtual verification, order grouping, and pill counting, all with the objective of providing an expanded suite of pharmacy workflow software.
• American International Group and Stone Point Capital forming Private Client Select Insurance Services. Under the deal, AIG’s Private Client Group will be moved and rebranded to the new independent platform focusing on high and ultra-high net worth clients.
• Keurig Dr Pepper (“KDP”) and Nutrabolt announcing a strategic partnership in which KDP made a $863 million cash investment and entered a long-term arrangement to sell and distribute Nutrabolt’s C4 Energy beverage. KDP’s investment resulted in an approximate 30% ownership position in Nutrabolt and an overall valuation of $3.0 billion while providing a complete exit for MidOcean Partners.

The rationales for these transactions are varied and numerous with benefits for each party.  Common themes include: (i) the provision of partial or complete liquidity to earlier investors while also potentially providing growth capital for add-on acquisitions, (ii) the introduction of a larger strategic partner to provide distribution capabilities or other industrial attributes including, for example, access to an existing customer base or manufacturing capabilities, (iii) partnering with a private equity investor who can provide the “heavy lift” of creating a true stand-alone entity (particularly noteworthy in true corporate carve-out investments), (iv) allowing a corporation to take a meaningful minority investment, enabling it to monitor progress over several years, while providing a defined path to full ownership, and (v) allowing a “selling” corporation to maintain a minority position to allow incremental value creation resulting from the realization of synergies.

These transactions are highly bespoke and, by definition, bilateral, which provides a unique and proprietary opportunity for corporations and private equity investors alike.