Madison Dearborn to make 2.8x its money with Ikaria sale

The $2.3 billion sale of Ikaria Inc. is expected to produce a whopping 140 percent IRR for Madison Dearborn Partners after a one-year hold, a source said.

Mallinckrodt plc said Thursday it would buy the critical care company in a deal valued at $2.3 billion, which includes debt. Sellers include Madison Dearborn and New Mountain Capital.

Hampton, N.J.-based Ikaria makes Inomax, which is used to treat hypoxic respiratory failure in infants. In February 2014, Madison Dearborn completed a roughly $1.6 billion recap of Ikaria, which included an equity investment of $244 million from the sponsors.

The deal resulted in the Chicago firm owning a majority stake. New Mountain, then one of the sellers, ended up with a minority stake.

With the sale of Mallinckrodt, Madison Dearborn is expected to make 2.8x its money, the source said. New Mountain will make roughly four times its investment, a second source said.

Madison Dearborn’s investment came from its $4.1 billion, 2010 sixth fund. Fund VI is generating a 28.1 percent net IRR and a 1.77x investment multiple as of June 30, performance data from the Regents of the University of California said.

Madison Dearborn is out fundraising for its seventh fund, which is targeting $3.75 billion.

New Mountain’s take

New Mountain ownership of Ikaria goes back to 2007, when Ikaria merged with INO Therapeutics in a $670 million deal. New Mountain, ARCH Venture Partners and Venrock Associates funded the transaction, with New Mountain investing $220 million, peHUB reported.

Ikaria has issued at least three dividends. It distributed $172 million to its shareholders in 2012, and $130 million in 2011, as well as excess cash on Ikaria’s balance sheet in early 2012.

With the dividends plus the Madison Dearborn recap and proceeds from the sale to Mallinckrodt, New Mountain will end up with about $880 million cash, the second source said.

New Mountain’s investment in Ikaria came from its second fund. Fund II, which raised $1.55 billion in 2005, is generating a 13.3 percent net IRR and a 2x investment multiple as of June 30, the California Public Employees’ Retirement System said. 

In November, New Mountain closed its fourth fund at $4.13 billion. Performance data was not unavailable.

Madison Dearborn declined comment.

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