Unitranche Loan Finances Acquisition Of DNA Tester

Health care buyout shop MTS Health Investors LLC scored unitranche financing form Golub Capital for its latest deal after talking with more than 10 lenders, Curtis Lane, senior managing director, told Buyouts.

The New York-based shop bought DNA Diagnostics Center Inc., a company that provides DNA testing for paternity tests and other uses, from its founder, Dr. Richard Lee. “Difficult is an understatement,” Lane said, when asked about what it was like financing the transaction. “It’s extremely difficult, the most difficult of my career of almost 30 years.”

Lane and Stefano Robertson, a principal at Golub Capital, declined to discuss pricing on the unitranche funding, which is a hybrid of senior and mezzanine debt. MTS Health Investors typically invests in companies with at least $3 million of EBITDA and in deals with enterprise values of at least $25 million. Lane did say that his firm could have used a more traditional senior financing package, but opted for the unitranche for convenience, because it would only have to deal with one lender, and there would be no syndication risk.

Besides admiring DNA Diagnostics Center’s history of generating solid cash-flow and seeing a market for paternity and other DNA tests, Golub Capital’s Roberston said his firm’s confidence in the deal stemmed from its own experience, having done more than 20 deals in the sector, as well as the expertise of MTS Health Investors. “They have two funds and a terrific track record and an impressive list of LP investors,” Robertson said of MTS Health Investors.

The investment came from MTS Health Partners II, a $120 million fund that closed late last year. That fund is now about 50 percent invested, according to Lane of MTS Health Investors. The shop aims to make 3x to 4x its money on deals, and it typically holds companies three to five years.

Going forward, MTS Health Investors hopes to expand the company into new markets. DNA Diagnostics Center currently specializes in paternity tests, and its products were used to determine if Larry Birkhead was the biological father of the late Anna Nicole Smith’s daughter. The Ohio Innocence Project also used the company’s tests to exonerate Robert McClendon, who served 18 years for a child rape he didn’t commit.

Lane said the tests could see wider application in areas such as forensics research, adoption-related services, and by immigrants trying to get permission for relatives overseas to come to America, to name a few. MTS Health Investors has brought in Dr. Ellen Moscovitz, who has more than 20 years experience in the DNA testing industry, to lead the company. DNA Diagnostics Center employs 200 people.