2008 Year End Review


2008 is likely to go down in history as one of the most unpredictable years for the financial markets. Nevertheless, we closed three new platform acquisitions in the first half of 2008 and were particularly successful throughout 2008 completing numerous synergistic and accretive add-on acquisitions across our portfolio. While we start 2009 with a high level of uncertainty around general economic conditions and the state of certain industries, the basic tenets of our investment strategy remain the same: we look to partner with strong management teams to build and grow service-based businesses with recurring revenues, defensible niches and competitive advantages in the healthcare, business services and financial services industries.

Highlights include:

Bryant & Stratton is a regionally accredited, degree-granting post-secondary institution providing associate and bachelor degrees. It serves over 7,500 students from 15 campuses in New York State, Ohio, Wisconsin and Virginia and its online platform. Parthenon’s acquisition was the result of a more than four year deep dive into post-secondary education and involved a lengthy closing process with numerous regulatory hurdles. We were attracted to the company based on its 150 year history, career education focus, strong market fundamentals, high barriers to entry and an experienced management team, led by CEO John Staschak. Parthenon closed a recapitalization in partnership with the existing owners in early 2008.

Ascension is a leading retail insurance brokerage company formed through a series of targeted acquisitions. It was successfully launched in 2007 by Parthenon in partnership with Len Kline, a 30 year insurance executive. Ascension targets property & casualty, employee benefits and specialty insurance lines in the Southeast and on the West Coast. Ascension completed four acquisitions in 2008: Georgia-based Bryant Wharton in January 2008; California-based Pan American in February; Florida-based EMI in May and North Carolina-based First Charter in December. Ascension’s strategy is to take advantage of industry fragmentation to build a leading brokerage focused on small and mid-size businesses, regional density, cross-selling opportunities between P&C, employee benefits and specialty lines and best practices across all operations.

Captive Media is the #1 provider of alternative out-of-home advertising and marketing services in the fitness club channel for national brands. Captive’s network reaches 7 in every 10 health club members in the 20 largest media markets in the US and encompasses over 3,000 health clubs. Captive Media benefits from the shift in advertising dollars towards alternative out-of-home mediums and is a cost-effective way for advertisers to reach a highly desirable target audience. Immediately after closing, Ken Williams joined as CEO as part of the transition of the business from its owner/operator upbringing to a national, professionally managed organization.

Abeo was formed in late 2007 through the merger of three anesthesia revenue cycle management companies and recruitment of a professional management team led by Mark Smith. The company offers anesthesia providers a full solution of billing, coding, collections, technology services and practice management, thereby enabling customers to outsource their entire back-office billing function. Significant operational milestones were achieved in 2008, including the integration of the three founding companies and the subsequent follow-on acquisition of Pasadena Billing Associates in September 2008. The company is now the largest anesthesia-only provider of revenue cycle management services in the western-half of the US and second largest in the US.

Alarm Security Group (ASG) is a leading provider of security alarm monitoring and installation services. Since our recapitalization in October 2007, ASG has grown its recurring-monthly-revenue (RMR) from $2.7 million to $4.6 million and has become the 10th largest company in the industry. ASG currently operates in the Mid-Atlantic, Southeast and Texas and continues to pursue add-ons in targeted markets where ASG has competitive advantages through route density and operating leverage. Based on its strong operations and financial metrics, ASG was able to upsize its credit facility in December 2008, giving the company over $75 million of dry powder to purse acquisitions and organic growth.

We completed the exit of Med-Tel International with the sale of Med-Tel/UK to London-based UME Group, a strategic acquirer, in August 2008. This, in conjunction with our 2007 sale of Med-Tel/US to Medical Resources, Inc., closed out Parthenon’s 2002 direct investment in the medical imaging space. While the US imaging market faced many headwinds during the last five years, the UK market has demonstrated strong growth and fundamentals. We appreciate the efforts of Chairman Tom Dent in this exit.

On the human resources front, Gerri Grossman joined the Parthenon team during 2008 as Chief Financial Officer. Gerri came from Crosslink Capital where she oversaw financial, compliance and administrative functions. Andrew Dodson, who focuses on insurance, environmental and business services, was promoted to Principal and Zach Sadek, who focuses on business and financial services including education and distribution/logistics, was promoted to Vice President.

We continue to look for new platforms and add-on acquisitions. While the macro-economy and financing markets present obvious challenges, we believe this dislocation is creating attractive opportunities in our targeted sectors: financial and insurance services, healthcare and business services. Attractive platforms have management, intellectual property, technology and/or route-based advantages. We think our significant experience in targeted sectors, resources to understand more complex situations, and our long-term investment horizon differentiate Parthenon in this tough environment. Where third party leverage is required, we have been successful in raising new debt financing and believe we can navigate the current complexities of the credit markets.

We look forward to working with you in 2009 and expect to be active on both portfolio related acquisition growth and new platforms. Don’t hesitate to reach out to any member of the Parthenon Capital team. And please stop by if in Boston or San Francisco.