Mason Wells Sees Exit and Close –

In a sweet-and-sour month for Milwaukee-based Mason Wells Inc., the firm saw an exit out of its buyout fund, but came up short on its debut biomedical venture capital fund.

On the sweet side, the firm recently exited Duralam Inc., a flexible packaging provider based out of Appleton, Wis. – a company it acquired in January 1996. Minneapolis-based Bemis Company Inc., a supplier of flexible packaging and “pressure sensitive” materials, has signed a letter of intent to acquire Duralam and the transaction is subject to approval before closing.

John Riley, a managing director with Mason Wells, declined to name the IRR for the company, but said Mason Wells has exited 12 of the 15 original platform deals it has made in the paper/packaging/printing sector, and the “IRR is easily in top quartile for the industry.”

Mason Wells made the investment through the $175 Mason Wells Leveraged Buyout Fund I for an unspecified amount. Aside from the paper/packaging/printing sector, the fund also invests in business/software/services and engineered products. “There’s room for one more transaction,” Riley said.

Over the five years Mason Wells has held Duralam, the firm was “able to move from a single plant to two. Suppliers today want more than one plant to rely upon,” said Riley. “And we were able to complete an acquisition. We also added to [the company’s] technical base.”

In other news, Mason Wells has closed on its third and final round of fund raising for Mason Wells Biomedical Fund I for which it raised $43 million. The firm’s target was $75 million.

“Most potential LPs said that they were over-committed in this asset class,” said Dan Broderick, general partner at Mason Wells. “The stock market tech sector, and volatility of the buyout market [also] gave pause. And some LPs told us, We’re not doing first funds’. So given the environment, and that it’s a first-time fund, we should be elated with the result.”

He added that $43 million is the most ever raised by a Wisconsin firm for a venture capital fund. (The second largest, Madison Venture Investors, has a $35 million fund.)

Investors in the fund included The State of Wisconsin Investment Board, Marshall & Iisley Corp., Hexagon Investments, Northwestern Mutual Life Insurance Co., A.O. Smith and other private foundations and individuals.

The focus of the fund is in biotechnology, medical devices and biomedical information technology industries, primarily in the upper Midwest states.

“The Great Lake states are under-served by biomedical venture capital,” Broderick said. “We see several local opportunities.” Another reason for the local focus: “Early stage investing is by definition a local business. We have one investment in Indianapolis, a couple in Madison (Wisconsin). You have to spend time with these companies, one-day trips if you’re going to be efficient with your time.”

In terms of what kinds of deals Mason Wells is in the market for, Broderick said in the biomedical space, the firm “would invest in business models that can build value, like a medical device that we could build around-something that has fewer side effects, or is cheaper or faster. Other possibilities [may concern] improvements in systems for patient safety, or a device specific to women’s health…” (Majority stakes are not a prerequisite.)

He added that, “the fundamentals are consistent in this sector. They are time tested, versus dotcoms which you can’t build on.”

The firm has made six investments with the fund to date and is about 20% invested. Broderick said he expects the firm to make a total of 10-to-13 deals with the fund at roughly $4 million per investment.

“We want to have a broad portfolio,” he added.

The firm has invested in Gala Design Inc., NameProtect Inc., TeraMedica Inc., AnVil Informatics Inc., and, most recently, in Deltanoid Pharmaceuticals Inc. and Mezzia Inc.

Mason Wells was the lead investor in a $4.2 million series A preferred stock investment in Madison-based Deltanoid, a pharmaceutical company that develops Vitamin D analogues that are used to treat osteoporosis, psoriasis, lupus and cancer. Minority investors included Venture Investors, Wisconsin Alumni Research Foundation, Tetrionics and Wisconsin Investors Network.

With the investment, Deltanoid plans to enter into a sales and marketing arrangement with a major pharmaceutical company to launch and co-distribute its products.

Mason Wells also recently participated in the Series B Preferred Stock financing of Mezzia, an Indianapolis-based ASP software solutions company for the health-care industry. KB Partners led the $5 million deal, while Hexagon Investment, and the relatively new Indianapolis-based Gazelle TechVentures participated.

Broderick said Mason Wells invested in Mezzia because of its “outstanding management,” and because the company’s product “fill an unmet need.”

Mezzia has created an Internet-based product that allows health service providers to meet the first requirement in their path toward e-business adoption, which is the active management of their enterprises’ demand for goods and services, according to company literature. Mason Wells estimates the company’s total available market for its initial product is $300 million.