Mezz Fund Brushes Off Loss With 4x Return

Target: Avatar International

Price: Undisclosed

Sponsor: The Riverside Company

Seller: Veronis Suhler Stevenson

Financial Adviser: Buyer: Golub Capital; Seller: TripleTree LLC

Veronis Suhler Stevenson‘s first mezzanine fund generated more than 4x its investment in Avatar International, a provider of health care surveys and training services it recently sold The Riverside Company for an undisclosed amount, according to firm executives.

The deal offers some welcome news for the fund, VSS Structured Capital I, after another company from the portfolio, business-to-business publisher Schofield Media Group LLC, went out of business after a bank cut off its credit, as Buyouts recently reported.

Founded in 1981, Avatar contracts with hospitals, physician practices and other health care groups to provide them with patient surveys, reporting tools and training designed to improve the patient experience. Veronis Suhler Stevenson bought the company in 2008 via VSS Structured Capital I, which raised $123 million in 2004.

The firm brought in a new CEO, invested in sales and marketing, and increased Avatar’s client base by about 50 percent during its ownership, Hal Greenberg, a partner with Veronis Suhler Stevenson, told Buyouts. Today the firm serves more than 400 hospitals and 120 home health agencies, according to Veronis Suhler Stevenson. “Last year, we started getting a lot of in-bound requests from potential buyers,” Greenberg said. “At least four or five randomly came in; in light of that, we decided to explore” a sale.

Terms of the sale to Riverside Company weren’t released, though the latter typically buys companies generating EBITDA of $5 million to $20 million.

Avatar was one of two control-stake deals VSS Structured Capital I made, the other being TMP Worldwide, a New York-based provider of recruitment advertising and communication services that the firm bought from Monster Worldwide Inc. in 2006 for $45 million, according to Capital IQ. Greenberg said that the firm has already taken some dividends from the company, but likely wouldn’t look to exit the investment for another year.

In total, VSS Structured Capital invested $145 million (redemptions from early returns allowed the firm to invest more than the $123 million in commitments it secured) in 12 companies. The fund is performing well, Greenberg said, with the one notable exception of Schofield Media, whose failure brought an end to 25 publications and affected some 200 employees across several offices. The fund invested $7 million of subordinated debt into the company in 2005. “It’s unpleasant when you have a Schofield in there, but it’s more than offset by Avatar, TMP and other companies we’ve exited from,” Greenberg said.

The firm’s mezzanine group is currently investing VSS Structured Capital Fund II LP, which closed on $312 million in commitments in 2009. The firm won’t likely seek to raise another mezzanine fund till late next year or early 2013, Greenberg said.

Avatar is Riverside’s 17th acquisition of the year, according to a firm press release.