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Q&A with Apax about Kinetic Concepts deal

July 13, 2011: 11:38 AM ET

Apax Partners discusses its $6.3 billion bid to take Kinetic Concepts private.

Wound care company Kinetic Concepts (KCI) today agreed to be acquired by a private equity consortium that includes Apax Partners, Canada Pension Plan Investment Board and the Public Sector Pension Investment Board.

The $68.50 per share deal values Kinetic Concepts at $6.3 billion (including the assumption of debt). It's a 6% premium to where  the company's stock was trading yesterday, and a 21% premium to the one-month average trading price in the month before news first leaked about a possible deal. Longer-term, Kinetic Concepts stock hasn't been above $68 per share since 2005.

The deal includes a 40-day go-shop period, and committed debt financing from Morgan Stanley, BoA Merrill Lynch and Credit Suisse.

So I spent some time on the phone this morning with Buddy Gumina, co-head of Apax's healthcare practice. What follows is an edited transcript of our conversation:

Fortune: Apax has had a healthcare practice for a long time, but is this the first U.S.-based device deal you've done?

Buddy Gumina: We did one years ago called Ascent Healthcare Solutions. Then we did a deal called Molnlycke Health Care, which is based in Europe but had some operations in the U.S. as well.

A lot of med device investors have complained about increasing FDA compliance hurdles. How did that factor into your decision making?

How we thought about the business is that you have some attractive macro trends, including an aging demographic and increasing need for healthcare solutions that increase quality and reduce costs. And then there are other attractions, like the product portfolio.

It's true that compliance is critical for any healthcare company, whether it's with the FDA or other government agency. And it is getting more stringent. But this is a category we've been investing in for a number of years and med devices is a subset we've long focused on. We did a lot of diligence on Kinetic and believe this is a fair price.

Speaking of the price, you're paying a share price above where the company has traded for the past six years. What do you know that the public markets don't?

It's hard for me to comment on what's in the public mind when buying or selling stock. All I know is our perspective of the business and, again, I think we've offered a fair price.

Beyond shareholder liquidity, what would Apax bring to Kinetic?

We understand how to help a company like Kinetic look strategically at next steps, and really understand the regulatory challenges. Apax also has a big global footprint, and this is a global business that we think we can help expand even further.

So our plan is to support and expand the core business that exists today, support and invest in new product launches and also support potential future M&A.

Any specific areas you're looking at for M&A?

Nothing specific I'd mention right now.

Why did you bring two pensions along on the equity side?

Both of the pensions are limited partners in Apax, and had previously expressed interest in co-investing. We feel that if we're going to partner with someone on a transaction like this, we'd like to do it with our own investors.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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