Madison Dearborn Checks In With Healthcare Add-on –

Madison Dearborn Partners gave its National Mentor portfolio company a boost with the addition of REM Minnesota in an add-on deal. Tim Sullivan, a managing director at Madison Dearborn, said the transaction, expected to close in April, coincided with a refinancing arrangement between National Mentor and its bank. J.P. Morgan and Fleet Capital will assist in the deal’s financing with a senior debt facility.

Madison Dearborn originally acquired National Mentor from Magellan Health Services in 2001 for $121 million. The deal gave Madison Dearborn a human-services healthcare platform, focused on providing home and community-based assistance to individuals with developmental disabilities, at-risk children who are behaviorally or medically challenged and individuals with acquired brain injuries. The Massachusetts-based company last reported EBITDA of $22.1 million with $218.5 million in revenues for the 2001 fiscal year, as part of the publicly held Magellan.

“REM Minnesota basically provides identical services in different markets,” Sullivan said. “This deal will add to the diversity of markets we serve.” He said REM is “comparative” in size to National Mentor, and added, “They’ve shown top-line double-digit growth [consistently].”

Madison Dearborn expects to continue adding on to the National Mentor platform, although Sullivan said that in the near term, for the next 12 to 24 months, the company would primarily focus on integrating REM into the business.

“The combination of the two businesses makes National Mentor a well-capitalized provider with a diverse set of programs. The smaller providers can’t offer as many different programs as [National],” Sullivan said. He also noted that as people look to move from an institutional to a community setting, National Mentor’s diversity in its offerings would give it an advantage over the smaller guys in the industry.

Eventually Madison Dearborn will probably look to float National in a public offering, although Sullivan said, “There’s a lot of work between then and now, and the markets will have to be there.”

Madison Dearborn will use its Madison Dearborn Capital Partners III LP fund for the transaction, which is fully committed but is still being used for follow-on investments. That fund closed in 1999 at $2.2 billion. The firm made headlines in 2001 with the close of its Madison Dearborn Capital Partners IV fund, at $4.036 billion, surpassing its initial $3.5 billion target projected at the fund’s launch.