Water Street Eyes Add-Ons For Diagnostics Co.

Water Street Healthcare Partners is in talks with several potential add-on targets for Alpine Biomed, its Fountain Valley, Calif.-based portfolio company that makes diagnostic equipment used in gastroenterology, urology and neurology, Ned Villers, partner, told Buyouts.

On Jan. 15, the Chicago-based health care-focused buyout shop completed its second add-on for the company, scooping up Stellate Systems Inc., a Montreal-based maker of neurodiagnostics systems. Water Street Healthcare plans on adding one to two more companies to the Alpine Biomed platform during its ownership, which typically lasts three to seven years.

Water Street Healthcare acquired Alpine Biomed for an undisclosed sum in August 2007. That investment was done in tandem with Alpine Biomed’s carve-out of the neurology diagnostic product line of Medtronic Inc., a publicly traded Minneapolis-based medical device maker.

After closing the Alpine Biomed deal, Villers reached out to Stellate Systems President and CEO Jean Gotman to express interest. The acquisition increases the size of Alpine Biomed’s neurology business and gives Alpine Biomed a foothold in the sleep diagnostics market, which Water Street Healthcare sees as a rapidly expanding area with sleep disorders already affecting some 40 million Americans. Alpine Biomed and Stellate Systems also offer complementary products and software that detect and monitor epilepsy and muscular disorders such as carpal tunnel syndrome. Stellate Systems’s research and development department was also attractive to Water Street Healthcare, Villers said.

Villers declined to comment on terms of the deal for Stellate Systems, though he said it was worth under $20 million and financed with an existing revolver Alpine Biomed has with Bank of Montreal. Equity for the deal came out of Water Street Healthcare’s first fund, a $370 million effort closed in 2005. Water Street Healthcare has made one platform deal out of its $650 million second fund, closed in September, buying Gentiva CareCentrix Inc., a Melville, N.Y.-based company that provides home health care services.