Pe deals of the year

Introduction: Mission accomplished (mostly)   Terra Firma-EMI   3G-Burger King   BankUnited   Kinder Morgan   THL-Warner Music Group   Carlyle-China Pacific   Arcos Dorados   Sequoia-LinkedIn   Sun Capital-Bruegger's   Cerberus-Talecris   Court Square-FiberTech   Second best of the best

Emergency Medical Services Corp. -- Ever since the World Trade Center disaster cast the spotlight on rescue services, ambulance services companies have consolidated, many bearing evidence of private equity influence -- and success. In that vein, Onex Corp.'s backing of Greenwood Village, Colo.-based EMS was particularly providential. Onex and co-investors financed EMS' creation in February 2005, amalgamating ambulance company American Medical Response and EmCare, a staffing and hospital-based physician outsourcing provider. Both businesses were carved out of Laidlaw International Inc. for $828.8 million. Onex itself invested only $80 million of $219.2 million of equity. In December 2005 the company raised $113.4 million from an initial public offering, using proceeds to pay down debt.

Despite operating in fragmented segments historically fraught with uncertainty over government reimbursements for services, the businesses maintained lead market positions. Both AMR and EmCare amassed a steady stream of new contracts. They generated same-store growth and sales to keep acquisitions apace and brighten bottom lines. All this helped swell profits for the Onex-led group. The investors controlled 80% of the voting shares at the time EMS was sold to Clayton, Dubilier & Rice LLC for $3.2 billion, including liabilities, in March. Investors reaped a 7.7 times net return on cost, including proceeds from secondary shares sales.

ReachOut Healthcare America Ltd. and Sirona Dental Systems Inc. -- Fixing teeth may not be the most glamorous of investment picks, but it has drawn in substantial private equity capital. Two niche providers stood out for the healthy returns that their sponsors extracted through timely exits. Phoenix-based ReachOut sends dentists-on-wheels to service low-income children in public schools under the government's Medicaid contracts. It has separate programs for the elderly and the military. Sentinel Capital Partners LLC invested $22 million in 2007 and held 80% of ReachOut. The company, with less than $5 million of Ebitda at the time, was Sentinel's third investment in a dental business but the first where government reimbursements accounted for nearly 100% of accounts. ReachOut added Mobile Dentists in August 2008 and Help A Child Smile in 2010. With organic growth, Ebitda had reached $17 million by the time Morgan Stanley Private Equity took over as new owner in January. The sale allowed Sentinel to book profits of between 6 and 7 times its cost.

Dental equipment maker Sirona Dental's antecedents can be traced to a German company, Reiniger, Gebbert & Schall, which pioneered the electrical dental drill in 1882. Long Island City, N.Y.-based Sirona now makes an array of equipment including inlays, crowns, dentists' chairs and X-ray units. Madison Dearborn Partners LLC and co-investors bought Sirona in June 2005 from EQT Partners AB for close to $1 billion. The following year it engineered a reverse merger with Schick Technologies Inc., producer of radiographic-imaging systems. Since the merger, revenue has risen 32% to $770.3 million, and operating income has jumped to $128.1 million, from $52 million. The investors cashed out in May in a splashy exit marked by gains of nearly 300%, or 3.9 times cost.

CareMore Medical Enterprises Inc. -- High growth in healthcare management services, primarily in the baby boomer category, was the main rationale for CCMP Capital Advisors LLC's bet on CareMore. The Cerritos, Calif., company provides special-needs health plans to 54 million seniors, largely in California, Arizona and Nevada, in addition to more traditional Medicare plan coverage. CCMP, formerly J.P. Morgan Partners, injected just under $115 million of equity into CareMore in a $230 million recapitalization in 2006 whose terms were not disclosed.

The company by then had an established competitive niche, derived from an integrated care management model that aimed to reduce costs to patients and that, according to Standard and Poor's, generated strong earnings and stable cash flow. Throwing off revenue estimated at between $750 million and $800 million, CareMore proved an attractive target to WellPoint Inc., a healthcare benefits administrator with a $28 billion market capitalization. WellPoint is paying $800 million, allowing CCMP to reap 5 times its equity cost.

Anthony International -- Aurora Capital Group exited glass door manufacturer Anthony International through a June secondary buyout by Avista Capital Partners. The price was not disclosed, but a source close to the acquisition said Avista paid more than $400 million for the Sylmar, Cal-
if., company. Founded in 1958, Anthony is billed as the world's largest maker of specialty glass, commercial glass refrigerator doors and related products. Aurora Capital chairman Gerald Parsky says his firm found a "stable" platform in Anthony and bought it in 2004. The company grew organically and made several acquisitions that gave it a presence in European and Asian markets. In the U.S., it became a leader in the commercial-refrigeration sector, a position likewise anchored by numerous bolt-ons.

Under Aurora Capital, revenue more than doubled to $250 million, while Ebitda tripled to about $45 million. Avista's purchase multiple was rich, as was the outcome for the sponsor, which recorded an 8 times return and internal rate of return of 35% for each year it owned the company.

Advantage Sales & Marketing LLC et al. -- Marketing services businesses were another area that private equity exploited for abundant gains. Irvine, Calif.-based Advantage Sales offered outsourced specialized services to clients such as Unilever plc, Del Monte Foods Co., Johnson & Johnson, GlaxoSmithKline plc and Mars Inc., ensuring that clients' products are in stock and on store shelves and brokering sales of products to retailers.

J.W. Childs Associates LP teamed with then-Merrill Lynch Global Private Equity (now BAML Capital Partners) to buy Advantage for $1.05 billion in 2006. They shepherded revenue growth to about $1 billion in 2010. Ebitda grew 60% from 2006, with potential for more. At least that's what Apax Partners LLP believed when the London firm scooped it up for $1.8 billion in November. Including dividends in 2006 and 2010, J.W. Childs and BAML collected close to $1 billion in cash, or 2.9 times their equity.

AEA Investors LP had similar success with a close rival, Acosta Sales & Marketing Co., whose Jacksonville, Fla.-based business also outsources consumer products sales and marketing services to large clients. Acosta was sold in December to Thomas H. Lee Partners LP for about $2.15 billion. Likewise, D.E. Shaw & Co. LP doubled its money when it sold Aspen Marketing Services in April to Alliance Data Systems Corp. for $345 million, or 8.6 times its $40 million Ebitda projected for 2011.

Blacksmith Brands Holdings Inc. -- When McNeil-PPC Inc., a Johnson & Johnson unit, recalled 136 million bottles of Tylenol liquid pediatric over-the-counter remedies and similar items in April 2010, the owners of PediaCare were more than ready to pick up the slack. "Picture a shelf with all these cold remedies, and all of a sudden 24 disappear," says Andrew Janower, Charlesbank Capital Partners LLC managing director. "Retailers had the private label but no longer had the brands, so they were eager to have the proven brands." The big winners were the Boston private equity firm and its consumer brands platform, Blacksmith, which owned the PediaCare brand at the time.

Blacksmith was set up in 2009 through a carve-out led by industry veteran Peter Mann, who acquired five brands that were languishing within McNeil and overhauled them. One was cough lozenge Luden's, founded in 1879 and second only to Halls in brand recognition. Blacksmith changed the packaging to a more popular plastic bag and created two new flavors -- the first in 38 years. The team created radio advertising that played off nostalgia for Luden's, to wit: "Excuse me, like a sample of Luden's throat drops? Mmmmm, Luden's reminds me of being a kid." Luden's was showing 17% growth. Efferdent, a denture cleaner and the largest of the brands, was a similar story. Mann's group launched a new line and got retailers to buy in.

Then came the major recall in the pediatric cough and cold sector. Blacksmith re-engineered PediaCare's supply chain within a month, launching 15 items to replace the recalled Tylenol and related items. Retailers jumped at the offerings, making PediaCare Blacksmith's biggest area of growth.

Several things worked in Charlesbank's favor. Tarrytown, N.Y.-based Blacksmith paid a low Ebitda multiple, says private equity consultant Deepak Agrawal. Then, through deft marketing and some luck, revenue grew quickly by half. Lastly, they had a willing buyer in Prestige Brands Holding Inc., a public consumer brands group looking to expand. Mann was previously linked to Westchester, N.Y.-based Prestige, alongside other private equity firms, which had a successful run. After Prestige went public in 2007, Mann teamed up with Dana Schmaltz, the former president of another Boston private equity firm, then signed up Charlesbank to support Blacksmith's creation with hopes of building a platform. But after spending most of 2010 bidding on several deals and not winning any, the team opened up to another possibility, recalls Janower. Prestige, located less than a mile from Blacksmith, made overtures. While it was way ahead of the investors' timetable, the $190 million in cash was attractive. Charlesbank made 2.6 times its investment in just 12 months and three days, producing a 149% IRR, in one of private equity's quickest flips in recent years.

Private equity's most noteworthy failure of the year was the industry's largest:

Metro-Goldwyn-Mayer Inc. -- As the certainty of bankruptcy loomed, the studio known as the Lion endured 20 months of infighting among lenders, weighing of alternatives, agreeing on a plan and warding off interloper Carl Icahn. The drawn-out prelude to the entertainment studio's Chapter 11 filing on Nov. 3 was a fittingly cantankerous end to a deal that seemed contentious from the start. To deal with pressing maturities on liabilities that reached nearly $6 billion, MGM's prebankruptcy owners -- Providence Equity Partners LLC, TPG Capital and DLJ Merchant Banking Partners -- were said to be sparring with their strategic partners -- Comcast Corp. and Sony Corp. of America -- amid unexpected reversals in home entertainment. The group paid a little more than $5 billion in a takeover in April 2005 only to see declining DVD sales diminish the value of the film business. The reversal proved so profound that Sony reported by March 2007 that it had written down its MGM stake to zero. The PE owners were in denial for longer. By the time it filed for bankruptcy, MGM had racked up nearly $6 billion in debt. The curtain fell on the investors' total equity of $1.285 billion just as Spyglass Entertainment Holdings LLC came forward with a rescue plan that saved the studio from an ignominious outcome.