DFW Capital Partners and PineBridge Investments close investment in Covenant Surgical Partners, Inc.
DFW Capital Partners announced today that it has closed on a growth investment in Covenant Surgical Partners, Inc. (“Covenant”), a leading acquirer and operator of single and limited-specialty ambulatory surgical centers (“ASCs”) throughout the United States. DFW sourced and led the transaction, partnering with PineBridge Investments and co-investors to acquire a majority interest in Covenant via a $35 million senior preferred equity investment, the proceeds of which were used to facilitate the acquisition of five new ASCs and an increase in its senior credit facilities to support future acquisitions. Concurrent with the equity funding, SunTrust Bank led a $76.5 million senior credit and acquisition facility for Covenant.

Headquartered in Nashville, TN, Covenant operates 19 ASCs focused on certain core medical specialties that are driven by both managed care cost containment and the increasing ageing of the population – principally gastroenterology, ophthalmology and interventional pain management. Covenant’s recent model has been to acquire majority interests in single or limited specialty ASCs across a broad geography, with a significant minority retained investment by the center’s affiliated physicians or physician groups. Covenant seeks to bring new systems and procedures to bear in such acquired centers, and also consolidates financial, administrative, regulatory, contracting and human resources management functions – allowing its affiliated physicians to concentrate on the practice of medicine and efficient scheduling and utilization of the centers.

Covenant is led by Rick Jacques, its founder and CEO. Rick formerly was SVP of Corporate Development at Amsurg (NASDAQ:AMSG), the nation’s largest consolidator and operator of ASCs. Rick is joined by an outstanding team of senior healthcare services executives from the ASC, pathology laboratory and facility-based healthcare fields. DFW and PineBridge intend to work closely with Rick and his team in further developing the management infrastructure, systems deployment and center acquisition activities with the goal of building a formidable and high quality operator in the growing ASC field.

DFW was attracted to the Covenant opportunity based on the long-term view that lower-dollar surgical procedures (like colonoscopies, cataract surgeries, etc.) will continue to move toward lower-cost, non-hospital settings given their superior cost profile for payers, convenience of experience for patients, and clinical and logistical benefits to providers. Covenant has proven its ability to improve revenues at its acquired centers by providing patient marketing resources and programs as well as providing access to improved ancillary services. Further, DFW believes that the increasing complexity and regulatory environment facing smaller operators creates a compelling consolidation opportunity over the coming several years where Covenant can alleviate financial and operating pressures on physicians by acquiring a majority interest. Keith Pennell, DFW’s Managing Partner commented: “We are delighted to partner with Rick Jacques and the Covenant team in this exciting investment opportunity. We have been students of the surgery center space for several years, and were fortunate to uncover Covenant – a company with a superior integration and business model and focused on a segment of the procedure market that stands to benefit from demographic and economic forces currently at work within the overall healthcare market.”

Rick Jacques, Covenant’s CEO noted: “We are excited to work with DFW and PineBridge to fulfill our long-term vision of building the leading single and limited-specialty ASC operator in the industry. With our increased equity capital base and senior credit capacity, as well as critical scale achieved with the concurrent center acquisitions, we have developed a formidable platform for further growth.”

Covenant is the second platform investment in DFW’s newest fund, DFW Capital Partners IV, L.P., following its March 2012 investment in Information Innovators. In connection with this financing, Iroquois Capital, a founding investor in Covenant, also invested alongside DFW and PineBridge.

About DFW Capital Partners

DFW Capital Partners is a private equity investment firm focused on lower middle-market companies. The firm concentrates on service companies, with an emphasis on healthcare and outsourced business and industrial support services. DFW is backed by both institutional and high-net worth individual investors, and has established a 20+ year track record of success in building leading companies and delivering superior returns for its investors. DFW is headquartered in Teaneck, NJ, and maintains an office in Chevy Chase, MD. For more information contact Keith Pennell, Managing Partner, at (201) 836-6000.

About PineBridge Investments

PineBridge is an independent asset manager with over 60 years of experience in developed and emerging markets. We manage US $69.4 billion for institutional and individual investors worldwide as of 30 September 2012. Our investment platform offers innovative, core and specialized alpha-oriented solutions across asset allocation, equities, fixed income, private equity and hedge funds. What differentiates us is our integration of on-the-ground investment teams across asset classes, bringing investors the combined benefits of global perspectives and structured insights.   For additional information on PineBridge Investments, visit www.pinebridge.com.