IVCA Profile: The 2016 Private Equity Portfolio Company of the Year is Sage Products, LLC

IVCA Profile: The 2016 Private Equity Portfolio Company of the Year is Sage Products, LLC

October 26, 2016

In approximately one month – on December 5th, 2016 – the Illinois Venture Capital Association will gather for the IVCA Annual Awards Dinner. The yearly event honors the persons and organizations that have made an impact both within the association, the broader VC/PE industries and the community at large. The IVCA newsletter continues its profiles of the 2016 honorees, with the Private Equity Portfolio Company of the year, Sage Products, LLC.

In 2012, Madison Dearborn Partners (MDP) acquired Sage Products from their four co-founders.  The company is a leading developer of products used to prevent hospital-acquired conditions such as ventilator-associated conditions, skin injury due to incontinence, pressure ulcers, surgical site infections and healthcare worker injury. Sage looked for unmet medical needs, and developed innovative solutions. The company has consistently created new markets and product categories in patient infection control and preventative care.

In April of 2016, after working with the management of Sage Products to increase revenues (by almost 50%) and net earnings (by 63%), Madison Dearborn Partners sold the company to Michigan-based Stryker for 4.2 times its original investment. The background of this amazing Private Equity success story came about through a casual conversation, which resulted in a four year journey which lead to the successful exit.

THE ORIGINS

It was a dinner hosted in 2012 by Rita Canning, the wife of Madison Dearborn Partners Chairman John A. Canning, Jr., that sparked the firm’s interest in Sage Products, Inc. Sage Chairman Vincent Foglia was in attendance, and mentioned that the four co-founders of the Cary (Illinois) company was mulling a possible sale. Six months later, MDP acquired Sage for $1.06 billion. At the time, Sage had $290 million in annual sales, and 668 associates.

THE REASONING

“The first order of business was recognizing, ‘let’s not kill the golden goose,’” recalled MDP’s Timothy Sullivan, a co-founder and managing director of the healthcare team. Over more than four decades, Sage had established a veteran and experienced management team, and possessed a well-defined pipeline of new products that typically launched a new franchise every three to four years. They sourced ideas from clinicians and focused on internal R&D for new product ideas, in addition to acquiring and developing early stage products.

THE PARTNERSHIP

MDP worked with Sage management and managers on strategy review, and on certain initiatives, such as an international sales summit the firm helped develop. MDP has an arm that specifically helps portfolio companies look at growth investments. That experienced group helped Sage look in particular at growing international sales, the number of its own new products, and the number of new commercial products it could acquire. Subsequently, Sage hired 22 sales reps, three marketing and new product-development executives, as well as product development and marketing teams to adapt existing products and practices for European markets.

EXPANSION AND OPPORTUNITIES

MDP used a revamped Human Resources as a way to adjust the sales department at Sage. Culture shift and sales force disengagement easily could have occurred, because even though Sage expanded its sales territories to 87 from 71, its broader sales team grew to approximately 150 employees, shrinking the size of those territories. Sage and its HR team focused on communication regarding all that restructuring transparently. The result? The typical sales rep made more or the same total compensation than in the previous year, despite shrinking their respective territory.

MDP also convinced Sage – which primarily had always created its products – to expand the acquisition of new products, and to look at smaller opportunities of commercial products ready to sell. One such acquisition identified was in the patient mobility space that helps nurses lift heavy patients onto a gurney through a novel method using inflating blowers. Sage was able to successfully negotiate and consummate that transaction in January of 2015.

THE EXIT

While MDP typically invests in a portfolio company for around five years, Sage had always maintained an open policy in talking to possible suitors. In the latter part of 2015, the company received strong interest from a couple of prospective strategic acquirers. At the time, the health-related market and public companies’ stocks were trading at historic highs.

Stryker became the next Sage Products steward. Based in Kalamazoo (Michigan), Stryker has a strong culture and values similar to Sage Products, as well as a decentralized organization that would let Sage continue to do what it did best. Also, Stryker’s strong international sales force was viewed as a positive. The sale was consummated for $2.78 billion.

In the 38 months with MDP, Sage Products sales rose from $290 million annually to $430.1 million. The workforce increased from 668 associates to 828. The acquisition closed on April 1st, 2016. MDP itself generated $1.5 billion on behalf of its investors, a gross return of 4.2 times invested capital, and an internal rate of return of roughly 60 percent.

The CEO of Sage Products, D. Scott Brown, articulated why MDP’s assistance proved so helpful. “I learned in a short period of time how to think about our business differently with MDP’s counsel. We were a company owned by the same founders for 41 years, and MDP asked all the questions we never asked ourselves. Simple things like ‘Have you ever thought about doing this or that?’” They were engaged every step of the way and so committed to success.”

The 2016 IVCA Awards Dinner is open for ticket and table purchase by IVCA members.  Non-members may purchase tickets and tables beginning Wednesday, November 9th.

Click here for more information and purchases.