Water Street In Diabetes Carveout

Target: Facet Technologies

Sponsor: Water Street Capital Partners

Seller: Matria Healthcare Inc.

Purchase Price: $122M

Industry Sector: Healthcare

Diabetes is spreading fast in the United States. Incidence of the disease, which affects insulin production and the breaking down of glucose in the body, has doubled since 1980, and today, nearly 21 million Americans are believed to have diabetes.

Indeed, those numbers have not gone unnoticed, especially by investors that focus on health care. Last year Warburg Pincus created one of the country’s largest direct-to-consumer diabetes supply companies through the acquisition and merger of two Florida-based providers, CCS Medical and MP TotalCare, for approximately $630 million. Meanwhile, earlier this year, Isis Pharmaceuticals Inc. received $75 million in financing from Symphony Capital Partners to fund the development of two new diabetes medications.

The most recent PE play in the sector was made by healthcare-focused Water Street Capital Partners LLC, which recently agreed to acquire Facet Technologies—a designer and manufacturer of diabetes products—from Matria Healthcare Inc. The firm paid approximately $122 million in cash, and the deal is expected to close around the end of August.

Facet’s products are used by people who must routinely monitor their blood glucose levels as a key element of managing their diabetes condition. The Marietta, Ga.-based company is best known as a provider of lancets and lance-related devices. It has manufacturing plants in Marietta and McDonough, Ga., and Northampton, England.

Water Street was particularly attracted by Facet’s engineering and product development capabilities, which “could be built on for future platform growth,” according to Water Street Managing Partner Tim Dugan. Those attributes also position the company to “grow in related markets that could benefit from Facet’s ability to design, develop and manufacture specialty sharp components and related devices requiring extreme precision and accuracy,” Dugan said.

The sale of Facet to Water Street stems from Matria’s announcement in January that it planned to divest two of its diabetes-related businesses, Facet and Dia Real GmbH, the company’s overseas diabetes operation. (Dia Real, which provides diabetes disease management services and supplies in Germany, is still without a buyer.)

Tim Dugan launched Water Street shortly after he left the healthcare team of One Equity Partners in March 2005. The firm invests in later-stage, mid-market healthcare companies with transaction values between $50 million and $500 million.

According to SEC Form D filings, the firm has started the fundraising process for its inaugural fund, Water Street Capital Partners LP, and is looking to raise $300 million. Credit Suisse has been brought on as the placement agent for the fund. —A.N.