Anne Arundel Dermatology, backed by New Mainstream, seeking buyer

New Mainstream Capital is exploring the sale of Anne Arundel Dermatology Management less than three years after investing in what represents one of the last available skin-treatment groups of size, according to three sources.

Coker Capital, a healthcare-focused investment bank, is providing sell-side advice on the sales process, the sources said. Coker knows AAD well, having advised the dermatology group in connection with its June 2015 recap by New Mainstream.

AAD, Severna Park, Maryland, is being marketed off of run-rate pro-forma adjusted EBITDA of about $20 million, one of the sources said.

AAD is likely to benefit from scarcity value, sources said, given that the vast majority of derm assets of size have already gained PE backers. Platform-like dermatology services providers have historically commanded multiples of EBITDA in the teens.

The anticipated sale also ought to produce a handsome return for New Mainstream. When the lower-middle-market PE shop invested in AAD more than two years ago, the transaction commanded an enterprise value of about $35 million, equating to a multiple of EBITDA just below 10x, according to a fourth source.

Founded more than 40 years ago as a single physician practice in Annapolis, Maryland, AAD today encompasses 32 locations in Maryland, Virginia and Tennessee, including six surgery centers in Maryland and one in Virginia, the group’s website says. The group is led by CEO Scott Mahosky and employs more than 70 clinicians.

AAD offers general dermatology, cosmetic dermatology, pediatric dermatology and diagnostic services. Its surgeons provide Mohs Micrographic Surgery, a treatment for skin cancer.

New MainStream, which spun out from the Goldman Sachs Merchant Banking Division in 2010, typically makes equity investments of $10 million to $50 million in private companies generating $3 million to $15 million in EBITDA. The firm has offices in New York and Dallas.

This year so far has been relatively quiet on the derm front, as the most sizable groups in the sector traded hands in 2016.

That includes Advanced Dermatology & Cosmetic Surgery, which Harvest Partners recapitalized in May 2016, leaving Audax Group with a minority investment. Terms weren’t disclosed, but sources had previously speculated that the Jefferies-run sales process would fetch 14x to 15x the company’s close to $50 million of EBITDA.

In another secondary buyout, Abry Partners scored Candescent PartnersOliver Street Dermatology Holdings, the holding company for Dermatology Associates, following a Houlihan Lokey-run auction.

Varsity Healthcare Partners in February 2016 exited Forefront Dermatology through a sale to OMERS Private Equity. The deal commanded a valuation north of $450 million, the Wall Street Journal reported at the time.

In more recent activity, Buyouts reported in August that Ontario Teachers’ Pension Plan was nearing a deal for Northeast Dermatology Associates.

A New Mainstream representative declined comment, while those with Anne Arundel and Coker couldn’t immediately be reached.

Action Item: Check out New Mainstream’s investment team here: http://www.nms-capital.com/team/

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