Growth Equity Shop Off To Fast Start In 2009

Targets: MINDBODY, BLI Messaging, Chancellor University

Price: $5.6 million in MINDBODY; otherwise undisclosed

Catalyst Investors has jumped out to a fast start in 2009, announcing three first-quarter investments after going all of 2008 without a single deal.

The New York-based growth equity shop made a $5.6 million investment in MINDBODY, a San Luis Obispo, Calif.-based company that develops and manages software for billing, scheduling and other business services. It also completed undisclosed investments in BLI Messaging, a messaging technology company, and Chancellor University, an online for-profit college headquartered in Cleveland. Each of the deals, which were all announced on April 28, are straight growth equity infusions with no debt financing. The firm typically makes investments of $5 million to $30 million.

Catalyst professionals developed serious interest in roughly eight deals in 2008, but in most cases they were uncomfortable with the price the seller’s were asking, Brian Rich, managing partner, told Buyouts. Rich expects the firm to make more deals in 2009 as sellers come to terms with the reality of the current recessionary marketplace. “I think that what we’re seeing is some tempering of expectations,” he said.

Executives at MINDBODY, whose customers are mostly health clubs, plan to use Catalyst’s investment to expand their business into hair salons and other verticals, Rich said. The basic plan for Providence, R.I.-based BLI Messaging is to widen its customer base; Catalyst executives structured that investment in such a way that the firm will have the option to increase its stake in the company and potentially be a majority owner, Rich said.

The investment in Chancellor University gives Catalyst a position in the burgeoning for-profit online education sector, which has been one of the most lucrative for private equity firms of late. ABS Capital Partners, for example, earned 17.1x its invested capital after taking American Public Education Inc. public in December 2008, as previously reported in Buyouts.

Catalyst made the investments out of Catalyst Investors Fund II, a $170 million fund the firm closed in 2006. That fund is now near 70 percent invested, Rich said.

Though the firm was quiet on the buy-side front in 2008, it did complete three exits, returning a total of $250 million. That should help when and if its executives decide to raise another fund. The firm’s standout deal in 2008 was a 17.1x return on its invested capital when it sold Aloha Partners LP, a broadband service provider, to AT&T Inc. for $2.5 billion.

Rich co-founded the firm in 2000 alongside general partners Ryan McNally and Christopher Shipman. The firm conducts late venture investments, growth investments, buyouts and private investment in public equity investments. Sectors of interest include media and communications, Internet media and infrastructure, software services, and business services.