EPrize sale boosts region's rep: Private equity deals expected to expand
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Detroit Venture Partners CEO and ePrize founder Josh Linkner, who left the driver's seat at ePrize in 2010 but had remained an investor, says the sale of the company is good news for area startups and VC firms.
Photo: KENNY CORBIN
Last month's acquisition of the online promotions firm ePrize LLC by the private equity firm Catterton Partners Corp. is another example of Southeast Michigan's growing, and diversified, private equity market activity.
Connecticut-based Catterton took a majority stake in the Pleasant Ridge-based company, buying out most of its investors -- including Dan Gilbert, the Quicken Loans Inc. founder and Detroit real estate investor who pumped $32 million into ePrize, CEO Matt Wise told Crain's.
Also out is Josh Linkner, who launched ePrize in 1999 and stepped away from day-to-day oversight in 2010. Wise, hired to replace Linkner as CEO, will remain in the job under Catterton.
Linkner declined to comment on the specifics of the deal but said investors received an "attractive" return.
"It's a symbolic first, as I don't know of an Internet company that's had this size of a deal in the region," he said. "EPrize has performed well, and it was an attractive target."
EPrize reported revenue of $53.8 million in 2011, with expectations of exceeding $70 million in 2012, Wise told Crain's.
Social media marketing firm Wildfire Marketing Group was acquired by Google Inc. July 31 for a reported $250 million to $400 million, after tripling its revenue.
Linkner said the ePrize deal gives legitimacy to efforts of the area's venture capital and startups. Linkner is the CEO and managing partner at Detroit Venture Partners LLC, founded by Gilbert.
"It's a significant outcome and proves that you can start, build and exit a purely tech company in this region," he said. "It's really encouraging for the work we're doing here."
Michael Kell, senior vice president of the New York-based Customized Fund Investment Group of Credit Suisse, which co-manages the $130 million InvestMichigan Mezzanine Fund, called Catterton a "prestigious firm" and said its acquisition of ePrize is a "good signal of what's happening in Michigan."
"Usually we see a PE firm like a Cerberus buying a (auto) supplier," Kell said. "(EPrize) is a company that's non-automotive and non-heavy industrial and a really exciting transaction because it's a different profile than what we've seen in this state."
Venture capital investments in Michigan startups increased from $90.8 million in 2005 to $152.2 million last year, moving the state from 24th to 18th in U.S. rankings, according to the National Venture Capital Association. Last year, the state added five venture capital firms, an increase of 25 percent, the Michigan Venture Capital Association reported.
Private equity deals are also expected to heat up over the rest of the year and into 2013.
At an April panel of the Detroit chapter of the Association for Corporate Growth, experts said the rebounding auto industry is creating more deals across Southeast Michigan, and firms are looking to cash out on the uptick.
"Private equity companies need to sell their portfolio companies and bring returns to their investors," Jason Duzan, managing director of Birmingham-based Glencoe Capital Michigan LLC, told the gathering at Glen Oaks Golf & Country Club in Farmington Hills. "They need to show performance to raise more funds."
Raj Kothari, partner at Birmingham merchant banking and venture capital firm Seneca Partners Inc., said the ePrize deal is an example of the local market diversifying away from auto, which will increase the number of diversified equity firms interested in the market.
Recent non-automotive private equity deals include the $1.25 billion acquisition of the Thomson Reuters Ann Arbor-based health care data analysis business by Veritas Capital and the majority share acquisition of Southfield-based AlixPartners LLP by London-based CVC Capital Partners.
Wise said ePrize attracted more than 10 buyers, some from private equity, large venture capital firms and others from the technology sector. He declined to name other interested parties.
Linkner reportedly visited Jason Mendelson, managing director of the Boulder, Colo.-based venture capital Foundry Group, in May.
Linkner said ePrize chose Catterton because the firm set aside funds for the growing company to acquire additional technology in the market and because of its already large stable of retail companies.
Catterton's $2.5 billion of equity capital includes Bloomin' Brands, the Tampa, Fla.-based parent company of the Outback Steakhouse, Carrabba's Italian Grill and Bonefish Grill chains. Catterton and Boston-based Bain Capital LLC reportedly bought them for $3.2 billion in 2006. Bloomin' went public this month.
It also owns Edible Arrangements, Noodles & Co. and Yo Crunch yogurt brands.
"(EPrize) is on a tear right now and, ultimately, the timing made sense and the transaction was compelling," Linkner said. "They are consumer-focused, some of their companies we already represent, and they understand consumer thinking, which was a major selling point."
Catterton's retail focus provides ePrize instant data in the market, Wise said, providing "huge amounts of information, offering a strategic perspective for us and our shareholders."
This information is particularly in how consumers use their smartphones and other handheld devices for shopping, Wise said. Catterton set aside an undisclosed sum of funds for ePrize to acquire mobile technology to aid in its retail promotions.
"In the near future, we're looking at anything in the functionality of the handheld device and in mobile commerce," Wise said. "As people start paying with their phone, we're going to see demand for these services. And the market is moving so quickly, we would rather acquire than try to build in-house."
EPrize already has begun its transition into mobile, having acquired Chicago-based mobile marketing agency Cellit Inc. in January. The acquisition added about 450 clients to ePrize's roster.
"This deal validates the work we're doing as investors, that you can have the successful ingredients here in Detroit," Linkner said. "This sends a strong, definitive message that Detroit is a great place for tech entrepreneurship and further strengthens our resolve that Detroit 2.0 is well under way."
EPrize has considered a move to downtown Detroit for several years, especially with Gilbert as an investor. It remains in a 46,000-square-foot former brewery east of Woodward Avenue near I-696 in Pleasant Ridge. Wise said ePrize, with about 300 employees in metro Detroit, is still considering a move to Detroit.
"Dan (Gilbert) would still like us downtown, and he's clear about that," Wise said last week. "We're running out of space here in Pleasant Ridge, so we're still considering Detroit as it continues to be an attractive place for our employees."
The firm has hired 50 employees in metro Detroit this year and intends to hire 35 more by the end of the year, Wise said.
The company has offices in Atlanta, Chicago, Los Angeles and New York City. Major clients have included Coca-Cola Co., Microsoft Corp., The Gap, HSN, Miller/Coors, Yahoo, Procter & Gamble Co. and AT&T Inc.
Dustin Walsh: (313) 446-6042, email@example.com. Twitter: @dustinpwalsh