Carlyle’s investment in healthcare analytics company Cotiviti falls apart

Carlyle Group has abandoned its long-planned investment in healthcare analytics company Cotiviti, according to people briefed on the matter, dealing a blow to the private equity firm as it struggles to raise cash for buyouts after upheaval in its top ranks.

The deal’s demise took investors across Wall Street by surprise, since Carlyle had lined up $5.5bn in debt and a further $1bn preferred stock investment to finance the transaction.

Cotiviti’s owner, Veritas Capital, another US-based private equity firm, had hoped to sell half of the business at an about $15bn valuation. Late in the process, Carlyle sought to lower its purchase price, according to multiple sources familiar with the matter, and the two parties eventually ended talks.

Carlyle and Veritas declined to comment.

The withdrawn takeover effort comes as Carlyle tries to find its footing under new chief executive Harvey Schwartz, who was hired in February to lead the private equity group which has nearly $400bn in assets. His appointment came after a six month search for a new leader following the surprise exit of Kewsong Lee in August.

Through the end of this past year, Carlyle was forced to seek an extension with investors for a new $22bn buyout fund. William Conway, a co-founder of Carlyle, said in February he expected the hiring of Schwartz, the former president of Goldman Sachs, would help revive the firm’s fundraising efforts.

Carlyle’s investment in Cotiviti was also meant to be a shining moment for a different group on Wall Street: private credit investors. Big money managers, including Apollo, Ares and Blackstone, had elbowed out traditional banks to finance Carlyle’s proposed purchase with the largest direct loan of its kind.

“The direct lending world was on pins and needles for an allocation on this deal,” one person involved in the deal said. “There were a lot of $1bn commitments on this asset and [direct lenders were left] hanging in the wind for a number of months.”

Bloomberg earlier reported the deal had been terminated.