Two Canadian Pension Funds Team With Buyout Firm in LBO

(July 14, 2011) – The Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board of Canada (PSP) have teamed up with Apax Partners to complete a $6.3 billion leveraged buyout (LBO) of US medical device provider Kinetic Concepts Inc. (KCI), the Wall Street Journal reported.

The buyout – the third largest since the buyout bubble of 2006 and 2007, according to the WSJ – pairs Apax, a London-based buyout firm, with unlikely partners. Before the crisis, pension funds teaming up with buyout firms was quite rare; most deals saw multiple buyout firms coming together in what are known as “club” deals.

These multiple-buyout-firm deals, however, had worried many of the large investors in those firms, the WSJ alleged. The investors were concerned that they would lose diversification if two or more firms in which they had invested entered into a deal together, thereby increasing exposure to the company being bought out.

The partnership between the buyout firm and the pension funds – though not a common one – proves mutually beneficial. According to the WSJ, the deep pockets of institutional investors allow buyout firms to make deals even when the credit-market is relatively weak; additionally, entering into a deal together with investors can promote future relationships. “We are delighted to have the opportunity to partner with CPPIB and PSP Investments to support the company’s continued growth,” said Buddy Gumina, co-head of Apax Healthcare, in a press release from CPPIB.

For pension funds, the benefits include specific targeting of their investments and pursuing long-term growth. André Bourbonnais, the senior vice president of private investments for CPPIB, said, “KCI’s business is well positioned for growth based on global trends such as demographics, including longevity and an aging population. Together with KCI’s management, Apax and PSP Investments, we look forward to building upon KCI’s leading market shares and positioning the company for continued long-term success.”

Derek Murphy, the first vice president of private equity at PSP, echoed this sentiment: “This is an attractive opportunity to acquire a global market leader offering stable core revenues and significant growth opportunities through new products and geographic expansion. Apax brings significant expertise in the healthcare sector, while CPPIB is a like-minded investor with a long-term investment horizon.”

This deal continues a promising trend for CPPIB, which profited from Microsoft’s purchase of Skype, aiCIO reported in May. CPPIB had been part of an investor group that purchased a 65% stake in Skype in 2009, contributing $300 million to the deal.

KCI is a medical technology and devices company that specializes in wound treatment, both in terms of making treatment more effective for caregivers and making treatments more comfortable for patients. CPPIB is responsible for managing over $150 billion in assets for the Canada Pension Plan, while PSP manages over $45 billion.