TH Lee Goes For A Ride –

A struggling airline industry has not scared off Thomas H Lee Putnam Ventures. On March 28, the private equity firm finalized its acquisition of Sentient, a private jet membership company, from Credit Suisse First Boston.

Terms were not disclosed, but a source close to the deal said the “price tag is in the $50 million range.” CSFB invested $13 million in Sentient from 2000 to 2002.

The deal began to take shape in December when TH Lee approached Sentient. “This was not a case where the owners wanted to sell,” said Mark Stone, Sentient’s CEO. “This was a desire for TH Lee to buy our company.” Terms of the deal were agreed to in January, and after two months of due diligence and number crunching on both sides, the deal was completed.

With the revenue growth Sentient has shown over the last three years, an auction may have been the last thing TH Lee wanted to see. According to Stone, Sentient saw triple-digit growth in 2000 and 2001 (145% and 200%, respectively) and although growth slowed in 2002, the jet-membership company still experienced a 78% jump in revenue from the previous year. By comparison, two of Sentient’s larger competitors reported significant revenue drops last year. (Flight Options, owned by Raytheon, and Flex Jet, owned by Bombardier, reported a 25% and 40% decrease in revenue, respectively.)

“We feel strongly that the private aviation industry is well-positioned for continued growth,” said Jim Brown, managing director at TH Lee. “Commercial airlines are in disarray, and business people are looking for better alternatives.”

Traveling by private jet is one alternative to long checkout lines and the decrease in airline amenities due to the financial crisis surrounding the major carriers. The private flight business has three sectors. A person can charter a flight, which is usually done for local round trips. The second alternative is labeled fractional business,’ where a group of individuals (or companies) purchase a jet, creating a timeshare. According to Stone, fractional contracts can span five years and cost in the neighborhood of $3 million (which include a proportional share of the operational costs).

According to Stone, Sentient pioneered the third, membership-based alternative. “The niche we created gives people the convenience and luxuries associated with private jets, but without the capital and time commitments associated with [fractional] ownership,” said Stone. Members pay a fee of $100,000, $250,000 or $500,000, and draw down on their accounts similar to withdrawing from an ATM. “It’s a pay-as-you-go model,” he said.

Sentient, essentially a marketing firm, does not own any of the jets used by its members, but claims it can have a jet at the ready within five hours of member request. “Most of our demand is in the U.S. and Europe,” said Stone, although he declined to specify revenue generation derived from either locale.

Formerly known at eBizJets, Sentient has enlisted the help of L.A. Laker Shaquille O’Neal to endorse the company. Costs for chartering a jet through Sentient can vary from $2,000 per hour (for a Beechcraft holding 4-6 passengers) to $4,950 per hour (for a Gulfstream IV that seats up to 14 passengers).

“Harvey Golub (TH Lee’s chairman and ex-CEO of American Express) knows the travel industry and sees that we are poised to become the dominant leader in this space,” said Stone. “When corporations reduce budgets and capex, owning a timeshare is one of the first cuts. We think the logical alternative is a membership with Sentient, which entitles users to all the luxuries without overhead costs associated with ownership.”

According to published reports, some of Sentient’s founders left the company at the time of the CSFB purchase, citing CSFB’s changes to the Sentient management structure. The exodus led to the formation of Private Business Jets, a Massachusetts-based firm with a similar business model. According to a source close to the deal, the aforementioned ex-Sentient personnel may see legal action taken against them by TH Lee due to a non-compete agreement.