On Track 2, A Sale

February 22, 2010
By Daniel Hausmann

RedPrairie Holding Inc. is the latest to take a circuitous route to exit for its private equity firm.

The supply chain management software business, backed by Francisco Partners, agreed to an acquisition by New Mountain Capital LLC, forsaking an public offering for a buyout. RedPrairie filed for a $172.5 million initial public offering in November. Soon after, the company started getting in-bound acquisition interest from a few parties, New Mountain included, according to Chief Executive Mike Mayoras.

RedPrairie did not pursue a dual-track process – filing for an IPO while pursuing a buyout. “We had a very clear process,” Mayoras said. “There was no dual path intended to sell the company.”

Dual-track strategy has recently picked up steam. Getting ducks in a row and filing the paperwork for a potential IPO can be a powerful marketing tool to strategic or financial buyers, technology banker and Revolution Partners Managing Director Peter Falvey said.

“Part of it is credibility,” Falvey said. “If you go through the process of hiring bankers, filing an S-1, it gives credibility.”

Investors face a choice. They can take a business public and if the offering takes off the business could have the expansion capital necessary to scale up to possibly a more lucrative exit down the road. That, however, takes time and there is execution and market risk, whereas a buyout provides liquidity up front.

3i Group PLC was expected to run such a process with healthcare services provider Carema & Mehilaeinen. Vestar Capital Partners went through a similar process towards the end of 2009, with Birds Eye Foods Inc. filing for an IPO in October, and shortly thereafter signing a $1.3 billion deal to be sold to Blackstone Group.

Kohlberg Kravis Roberts & Co. acquired U.K. retailer Pets At Home Ltd. for $1.54 billion, as the company’s backer Bridgepoint Capital also plotted an IPO. TA Associates opted to sell OpenLink Financial to Carlyle Group in November after pulling a nearly 16-month-old $200 million IPO in September. Like RedPrairie, OpenLink also received some in-bound interest.

Venture-backed IPO filers are also changing course; Dolphin Equity Partners sold software-as-a-service company Gomez Inc. to Compuware Corp. late last year for a 7.7x return, and on Monday, digital archiver Mimosa Systems announced a $112 million sale to Iron Mountain Corp. Mimosa has raised money from August Capital, Clearstone Venture Partners, Dot Edu Ventures, Focus Ventures, Jafco Ventures and Mayfield Fund.

There are some caveats to the dual-track strategy, though, as our colleagues at Venture Capital Dispatch note.

http://blogs.wsj.com/privateequity/2010/02/22/on-track-2-a-sale/

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On Track 2, A Sale