Portfolio Comapny Gets Unfettered Capital


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By Jack H. Langworthy, Managing Director
 
A short article in this week’s LifeLines noted that Bain Capital of Boston led a $50M round of financing in a private healthcare performance analytics software company MedeFinance, Inc. The planned uses of the $50M per the July 29, 2008 Mass High Tech article were “to fund new growth initiatives and acquisition opportunities. MedeFinance also expects to use a portion of the proceeds to complete a stock repurchase from certain existing investors”.
 
Let’s hope that most of the money won’t go to cashing out current investors as that’s fairly mundane and not worth much of a discussion as we’ll assume it’s not a down round.  However VC/PE firms giving unfettered capital to a portfolio company to fund growth or make acquisitions is always interesting.  Expanding product offerings, filling out current product line functionality, investing in sales and marketing, and/or funding accretive acquisitions are proven ways to drive the top line which creates value.  And it speaks well of MedeFinance’s management if its investors are willing to let the company make such decisions without the kibitzing usually present in these situations.  We’ll see how this plays out as the leash may be shorter than it looks, particularly if every step turns out to require Board approval.  But, still, it’s an interesting use of words for a press release.
 
By way of contrast, we didn’t post press releases from several public companies all of which said that they were seeking to make opportunistic, accretive, strategic acquisitions.  Generally, what company isn’t interested in doing that? These types of announcements tend to be the softening agent which accompanies  disappointing earnings results.  However, history shows that it is difficult for a company to buy its way out of a downward revenue spiral as it tends to start too late to address what is, in many cases, a slide to bankruptcy or a forced, distressed sale.  Better to buy when you have cash, stock, or access to capital that you can use as currency.
 
See you next week.