Palamon makes 3.6x on sale of Ober Scharrer to Nordic Capital

The sale is the 16th realisation from Palamon's 2006-vintage fund, Palamon European Equity II, which held a final close on €670m and reported a net IRR of 8.42% as of September 2017.

The fund has produced eight realisations with return multiples of 3x or more, including German group purchasing organisation Prospitalia for 3x in 2015 and Spanish elderly care provider Sarquavitae in February 2017, also for 3x.

Nordic Capital drew equity for the deal from its latest buyout fund, Nordic Capital IX, which was launched in May 2017 and is expected to hold a final close in the next few weeks above its €3.5bn hard-cap. It is the second investment to be drawn from the new fund, after the GP's acquisition of a German dental group in February.

Palamon's managing partner Louis Elson told Unquote the original investment thesis had two parts: "Ageing demographics is a theme that we've been pursuing for a long time now. This investment was how we decided to pursue that theme in Germany, and the second part of it was the industrialisation of professional services."

The GP worked with founders to build out the management team and create M&A capability that tripled the size of the business during its holding period. Elson said, "We wanted to put together a group where all the doctors could participate within a much broader, more sophisticated system with better resources and better clinical outcomes. As a result of that we made more than a dozen acquisitions and quadrupled the number of practices."

The GP worked with private debt fund Bluebay and senior lender Berenberg (the most active providers of unitranche in Germany, according to recent research) to secure acquisition debt and to arrange two dividend recaps, a €136m portable deal in 2015 and a €230m unitranche with an RCF and acquisition line in September 2017, according to Unquote sister publication Debtwire.

The Debtwire report added that the incumbent sponsor was likely to retain Bluebay's services as the management team expected to spend €80m on acquisitions in the coming year and significant fees would be incurred to repay the existing debt early and arrange a new package.

"Part of the rationale for the timing of the exit was that the company has been growing at a fantastic rate, each year the growth is going to be larger and larger and the company will be able to utilise more capital," said Elson. "Currently, Ober Scharrer is the market leader with just 5% market share so that shows you it has a lot of runway to go even within Germany, and later on international expansion is a possibility."

Palamon mandated Rothschild to sell the company in October and marketed the asset with EBITDA of €25m, according to Unquote sister publication Mergermarket. Bridgepoint, Goldman Sachs Private Equity and PAI Partners were among the sponsors preparing bids, according to the report. Elson confirmed that the asset had attracted a lot of attention: "It was not just Nordic Capital that saw the potential of this asset, a large group of experienced PE shops and strategics expressed interest. We think this is just the beginning of a global trend of getting these services on a much higher clinical level."

Nordic Capital declined to comment on the financing of the transaction or any further acquisition plans.

Previous funding
Palamon acquired a majority stake in Ober Scharrer alongside the company's founders in May 2011. The transaction was thought to have an enterprise value of between €50-100m.

Company
Ober Scharrer was established in 1982 by two physicians named Manuel Ober and Armin Scharrer. Headquartered in Fürth, the company now has 80 facilities across Germany and 900 employees, and delivers more than 85,000 treatments per year. Key services include cataract operations and intravitreal operative drug application for degenerative eye disorders, as well as non-invasive eye treatments and the diagnosis of eye disorders. The company generated revenues of €92m in 2016.

People
Nordic Capital – Joakim Lundvall (partner).
Palamon Capital Partners – Louis Elson (managing partner).
Ober Scharrer Group – Sibylle Stach-Eckmann (CEO); Manuel Ober, Armin Scharrer (co-founders).

Advisers
Vendor – Rothschild (corporate finance); Willkie Farr & Gallagher (legal).

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• Topics
• Buyouts
• Exits
• DACH
• Healthcare
• Secondary buyout
• Germany
• Nordic Capital
• Palamon Capital Partners
• Rothschild