Madison Dearborn Partners is investing $244 million of equity to buy a majority of Ikaria, the latest example of a private equity firm using low equity in a deal.
The buyout of the hospital therapy provider is valued at about $1.7 billion. The deal includes about $1.2 billion in debt, according to Moody’s Investors Service. In addition to Madison Dearborn’s $244 million equity, existing shareholders and company management are putting in $188 million, Moody’s said.
Chicago-based Madison Dearborn will have a 52 percent stake while the existing shareholders, which include New Mountain Capital and company management, will have 45 percent.
Madison Dearborn and existing shareholders are putting in a combined $432 million, which comes to roughly 25 percent of the total deal value. The 25 percent is lower than the typical sponsor commitment of 28 percent to 30 percent, according to sources. Madison Dearborn’s investment, by itself, amounts to about 15 percent, while the other investors are putting in roughly 11 percent.
Madison Dearborn isn’t the only one taking advantage of the strong credit markets to use low equity in its deals. Apollo Global Management is buying CEC Entertainment, parent of Chuck E Cheese, in a $1.3 billion deal. Apollo Global is investing $335 million of equity, or around 25 percent, peHUB has reported.
Madison Dearborn’s investment in Ikaria comes from its last pool, according to an FTC filing.
Madison Dearborn Capital Partners VI LP collected $4.1 billion in 2010. The pool is 70 percent invested, a placement source said. Private equity firms typically begin fundraising for their next fund at around 70 percent called. “It’s time for [Madison Dearborn] to come back,” the placement source said.
The performance of Fund VI has also rebounded. The pool is generating a net IRR of 17.7 percent as of June 30, according to the Regents of the University of California. This is up from the 9.4 percent posted by Fund VI as of March 31, University of California documents said.
Officials for Madison Dearborn declined comment.
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