Riverside scores second-largest gain in its history on exit

Firms: Riverside Co. and General Atlantic

Target: Align Networks

Buyer: Apax Partners

Return on Equity: 12.6x gross to Riverside

Riverside Co recently sold out of its position in Align Networks, a workers’ compensation physical medicine network, to Apax Partners. The firm invested $15 million and wrought a total gain of $173 million, according to an internal memo seen by sister website peHub. That translates to a 12.6x gross cash-on-cash return, and a 9.4x net cash-on-cash return on the exit, after holding the investment for more than five years, according to a person with knowledge of the situation. The Align Networks exit represented the firm’s “highest carry-generating deal,” the memo said.

General Atlantic, Align Networks’s other sponsor, also sold out of its stake. “Align was a very successful investment for General Atlantic,” said Pat Hedley, a General Atlantic managing director.  

The Align Networks investment began in 2008 when Riverside Co invested in Universal SmartComp. Between 2008 and 2011, earnings increased five-fold, the person said. Over time, Riverside Co through recapitalizations became the majority owner.

Then in 2012, Riverside Co merged Universal SmartComp with General Atlantic-backed Align Networks, giving up its majority stake but remaining a minority owner. The company grew rapidly as a combined entity, the person said.

Riverside Co achieved the exit in part by choosing to hold its investment, despite offers to buy them out, according to the memo. “Bucking conventional thinking, the team declined an opportunity to sell fast-growing Universal SmartComp before entering a merger with General Atlantic-owned Align in 2012,” the memo said.

The original investment came out of Riverside Micro-Cap Fund I, a $250 million, 2005 vintage fund. The exit represents the Riverside Micro-Cap Fund team’s “best-ever” exit, according to the memo. The team, which closed its second fund, an SBIC vehicle, on $287 million in 2011, is led by fund manager Loren Schlachet.

Meanwhile, a source tells peHub the Riverside Micro-Cap Fund team is out in the market with its third fund, also slated to be an SBIC vehicle targeting around $225 million, which, with $150 million of SBIC debt, would jack the fund up to $375 million if it hits its hard cap.