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Water Street quickly raises $750M for new buyout pool

by Lisa Ward | Published July 31, 2012 at 2:42 PM

Water Street Healthcare Partners LLC, a midmarket private equity investor, said Tuesday, July 31, that it has raked in $750 million for its new Water Street Healthcare Partners III LP, after only eight weeks of fundraising.

"The speed that Water Street completed the fundraising is very impressive. Only about 1% of fund managers are able to have that efficiency. It's really unusual this day and age," said Andrea Auerbach, a managing director and head of private equity research at Cambridge Associates LLC.

Water Street began fundraising in early June, hoping to pull in $650 million, the same amount as its second fund, Water Street Healthcare Partners II, raised in 2008.

Tim Dugan, a founding partner of JPMorgan Chase & Co.'s private equity arm, One Equity Partners LLC, established Water Street in 2005. Investors doled out $370 million for Water Street Healthcare Partners I, the firm's original fund, in 2006.

Goldman, Sachs & Co., Allianz Capital Partners GmbH, Adams Street Partners LLC, New York Life Insurance Co. and Pantheon Ventures LLP are among the pension funds, endowments and financial institutions that invested in the latest fund, according to a person familiar with the matter, who added that the structure of the fund in terms of carried interest has changed little over the firm's lifespan and that most of the investors had also invested in the firm's previous funds.

"We are very pleased with the value Water Street has built in its group of health care companies, and the strong results its team has achieved over the past six years," said Brian Welker, investment director at Allianz Capital Partners, an investor in Water Street since 2006, in a press release.

Water Street declined to comment or provide its internal rate of return. Its first fund had an IRR of 9.7%, according to the University of California Regents. Its second fund has an investment multiple of 1.64, according to the source.

The Chicago-based private equity firm now manages nearly $2 billion, focusing on four areas of healthcare: medical and diagnostic products and devices, specialty distribution, outsourced healthcare services and specialty pharmaceutical products and services. Water Street's investments range from $50 million to $500 million.

In June, Water Street sold Horsham, Pa-based OraPharma Inc. to Canadian specialty pharmaceutical giant Valeant Pharmaceuticals International Inc. for about $312 million, booking a 2.4 times return on the $133 million it invested in the company in 2010, when Water Street bought it from Johnson & Johnson. OraPharma sells a drug called Arestin used for periodontitis, a disease that inflames and infects the ligaments and bones of the teeth. Johnson & Johnson bought the then-public OraPharma for $85 million in 2002.

Water Street also exited outpatient rehabilitation service Physiotherapy Associates in March, which it owned with Chicago-based Wind Point Partners, selling the company to Court Square Capital Partners for $510 million, according to Standard & Poor's.

"Private equity investors have been fairly successful investing in healthcare, and they have relatively consistent returns, especially compared to other sectors" Auerbach noted.

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Water Street quickly raises $750M for new buyout pool

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