Sentinel Feels Out Massage Biz With Small Fund’s Help

Target: Massage Envy LLC

Price: Undisclosed

Sponsor: Sentinel Capital Partners, Princeton Ventures

Seller: Natural Wellness USA Inc.

Financial Adviser: Sponsor: Princeton Ventures

Legal Adviser: Sponsor: Kirkland & Ellis LLP

Executives at Sentinel Capital Partners plan to push franchisees of Massage Envy Limited LLC to expand its newest portfolio company into all 50 states and abroad.

The New York-based firm announced its acquisition of the chain of massage therapy clinics from Natural Wellness USA Inc. on Jan. 4. The company generated revenue of $450 million in 2009.

Sentinel Capital’s experience with franchises and the fragmented nature of the massage market attracted the firm to Massage Envy. With 600 clinics already in operation, the Scottsdale, Ariz.-based company is the largest massage therapy chain in the nation; about 8 times the size of its nearest competitor, Jim Coady, a partner at Sentinel Capital, told Buyouts.

Massage Envy’s rapid growth also caught Sentinel Capital’s attention. Since its founding in 2002, the chain has expanded into 42 states. The company operates with a membership model, lending it stable and recurring revenue.

With Sentinel Capital’s support, the company already has plans to open 200 additional locations, including some in the eight states it hasn’t yet expanded to. It’s also planning to expand the services it provides, Coady said.

Sentinel Capital teamed up with Princeton Ventures for the investment. Jim Waskovich, a managing partner Princeton Ventures, was actually the one that sourced the deal with Massage Envy executives, but the Princeton, N.J.-based firm, which raises equity capital on a deal-by-deal basis, didn’t have the wherewithal to support the transaction on its own. Sentinel Capital is the majority investor in the deal.

“We like to partner with somebody who augments whatever expertise we could bring to the story,” Waskovich told Buyouts. “Sentinel was a natural charge given their experience with franchises, and we’d never invested in a franchise.”

For Sentinel Capital, the deal marks its first platform investment since September 2009, when it bought Precision Pipeline Solutions LLC, an infrastructure services provider to companies in the natural gas and electric utility sectors, as previously reported by Buyouts. Equity for the investment comes from Sentinel Capital Partners Fund IV LP, which closed at $765 million in July 2008. Research for the deal was a treat, with a number of Sentinel Capital professionals trying out the company’s services for themselves, Coady said, though he himself passed on a due diligence rub-down.

Waskovich said that Princeton Ventures, primarily a growth equity firm that gets its capital from a group of institutions and high net-worth individuals, may look to raise a proper limited partner-supported fund in the future but is not actively planning one.