ABS’ Q3 Performance Bucks Stagnant Market Trend

With an IPO, a merger, an acquisition and the addition of two new venture partners all taking place in the third quarter, ABS Capital Partners has had plenty to celebrate.

Of course, not all of those transactions went exactly according to plan, but the end results are just fine with the Baltimore-based venture capital firm. As long as ABS continues making money for its cadre of limited partners, all is well in its corner of the venture world.

For example, the firm didn’t expect to quickly cash out of a $20 million investment it made in YOUcentric in July, but when J.D. Edwards targeted the Charlotte, N.C.-based relationship management software firm for an acquisition shortly after, ABS could hardly say no.

“J.D. Edwards really came knocking on the door and thought YOUcentric had a compelling solution,” said Stephanie Manuel, ABS Capital’s marketing and communications partner. “J.D. Edwards obviously had customer demand and thought with YOUcentric they would have the right combination.

“We hadn’t been invested there that long, but spending on technology has slowed and it’s a harder environment to be viable in. You hope your companies have a product that is compelling enough to attract an acquirer. I don’t think acquisitions will be typical of our portfolio companies, but when someone comes along and sees a good fit, we are in favor of creating a bigger company rather than a smaller one.”

Another Successful Exit

With that “size does matter” philosophy in mind, ABS also struck gold in the third quarter when clinical research systems firm Clinsoft – also an ABS portfolio company – merged with Phase Forward, a provider of e-process solutions for accelerating global pharmaceutical development. The combined company, which now operates under the Phase Forward name, is now able to provide a seamless, Web-based solution that integrates front-end clinical trial management systems.

Although Phase Forward was not an ABS portfolio company, the VC firm received a board seat as a result of the merger.

Still, perhaps the best news ABS had last quarter was the initial public offering of portfolio company Omnicell. The company, which provides an integrated suite of clinical infrastructure and workflow automation solutions for the health-care space, hit the public market in August and finished up trading on Thursday at $8.03, more than a dollar above its $7 per share offering price. The offering was lead-managed by U.S. Bancorp Piper Jaffray.

“We were very pleased that Piper Jaffray wanted to continue to lead with the offering, even though the market was getting harder to work in,” Manuel said. “We were not pushing Omnicell out, but it was able to become profitable and was at a level where it could make a good return for our institutional investors.”

Although the firm is always looking for viable exits for its companies, its practice is not to push them into the public markets until they are absolutely ready, however, Manuel added.

“At the same time, if they can access capital in the public market and sustain themselves, we think [an initial public offering] is the right thing to do,” she said.

Still Wheeling And Dealing

There aren’t any exciting liquidity events on the horizon for any of ABS’ remaining portfolio companies, but most of them are sustaining their business plans without much trouble, Manuel said.

Nonetheless, ABS is still making follow-on investments out of its $450 million Fund IV to help prod some of its portfolio companies along.

The firm recently pumped $10 million into health-care firm U.S. Pathology Lab Inc., and is getting ready to make another investment into a communications software company.

“Things may be happening at a slower pace as a result of the markets, but we are still making investments,” Manuel said.

Nonetheless, those investments are at the low end of ABS Capital’s $10 million to $40 million range.

“We haven’t seen that many opportunities to give $40 million. With the absence of the public markets, we will be investing in companies over a longer period of time,” so there is no need to dish out all of the capital up front, she added.

Staffing Up For Hard Times

In addition to adding portfolio companies to its roster, the VC firm has also announced that it has hired two additional venture partners – Phillip Clough and Dean Goodermote – who will work closely with existing portfolio companies.

“We understand this is a difficult time and we need to make sure our portfolio companies are financed and staffed appropriately,” Manuel said.

Clough joins ABS from SITEL Corp., a global provider of outsourced call center services to large corporations, where he served as chief executive and president. Goodermote is the former chief executive of Clinsoft.

Danielle Fugazy can be contacted at: Danielle.Fugazy@tfn.com