Medical Deal Gives Exit To Navigation

Target: Physicians Endoscopy LLC

Price: Undisclosed

Sponsor: Silver Oak Services Partners

Seller: Navigation Capital Partners

Financial Adviser: Seller: Edgeview Partners

Legal Adviser: Sponsor: Kirkland & Ellis LLP; Seller: Katten Muchin Rosenman LLP

Silver Oak Services Partners has complted its fourth acquisition and its first in the ambulatory surgery center market. The Evanston, Ill.-based shop teamed up with management to recapitalize Physicians Endoscopy LLC. The deal represents a culmination of six months of research into the medical services field.

The firm didn’t disclose terms of the deal. Madison Capital Funding, an equity investor in Silver Oak Services, provided senior financing. Silver Oak Services typically invests between $15 million and $30 million in companies generating revenue between $15 million to $150 million and EBITDA of $5 million to $20 million.

The deal provided an exit for Atlanta-based Navigation Capital Partners, a buyout shop backed by Goldman Sachs. At the time of the acquisition, Navigation Capital was known as Mellon Ventures. In December 2006, the Navigation Capital team paid $250 million for the portfolio of Mellon Ventures with the backing of Goldman Sachs Vintage Funds, a secondary fund family in Goldman Sachs Asset Management’s private equity group.

Navigation Capital Partners still holds about 20 portfolio companies it acquired in the Mellon Ventures deal. The firm is investing from a $125 million vehicle provided by Goldman Sachs Vintage Funds.

Physicians Endoscopy managed six surgery centers when Mellon Ventures acquired it in January 2004. Navigation Capital decided to exit because it had succeeded in expanding the company during a typical hold period, said Eerik Giles, a partner and co-founder. Giles declined to discuss the firm’s return on the deal.

Silver Oak Services was drawn to Physicians Endoscopy in part because it believes more medical procedures such as colonoscopies will be performed on an outpatient basis, said Dan Gill, a managing partner. Physicians Endoscopy, based in Doylestown, Pa., partners with gastrointestinal physicians nationwide to develop freestanding ambulatory surgery centers. The company provides management services for its partner centers and maintains a minority ownership stake in each project. It operates 14 centers. The LBO firm is now looking to open new surgery centers and make add-on acquisitions.

As its name implies, Silver Oak Services concentrates its investments in the services side of a variety of sectors. Its investment team will typically look for services-related deals within eight to 10 different sectors, including business services, health care services and consumer services, Gill said.

Silver Oak Services did its first deal in December 2006, recapitalizing VeriClaim Inc., a Naperville, Ill.-based outsourcer of insurance claims services. The LBO shop went on to do one add-on for VeriClaim. In June, it sponsored a recapitalization of Convergent Resources Inc., an Atlanta-based company that provides accounts receivable management services to businesses in the health care, utilities, telecommunications and financial services industries.

Silver Oak Services is in the market raising its first fund. So far, the firm has accumulated $75 million in commitments and is targeting $150 million, according to Thomson Reuters data. Gill declined to discuss the fundraising.B.V.