Deal Is More Than Skin Deep for Owners

Aqua Pharmaceuticals LLC, a drug company that specializes in selling skin treatments, grew a whopping 20-fold in its six years. But the 50-employee Pennsylvania-based company was growing so fast, it couldn't keep up, co-founder Craig Ballaron says.

Business continued to grow over the past couple of years, with sales doubling despite a lousy economy. Today, Ballaron and partner Jay Gooding announced they sold a majority stake of their company to private equity firm RoundTable Healthcare Partners for an undisclosed sum. Ballaron will remain president and Gooding will continue as CEO.

"It gets harder to do this without a partner," says Ballaron, 49. "The larger you get, the more difficult it is to continue that growth trend."

The deal signals growing private investor interest in the health care sector, especially for niche operators like West Chester, Pennsylvania-based Aqua Pharmaceuticals. Ernst & Young points to health care businesses as an attractive target for private equity. One major selling point: health care tends to be less cyclical than many other industries.

RoundTable, based in Suburban Chicago, only invests in health care companies. With the Aqua Pharmaceuticals deal, it's entering a new specialty area. And while no one is disclosing financial information, RoundTable senior partner David Koo says his firm looks for companies with annual earnings before interest, taxes, depreciation and amortization of $10 million to $50 million.

RoundTable has been busy, announcing five transactions in the past month. Koo says the firm was busy last year striking a number of small deals. It continues to look for acquisitions through a $500 million fund started five years ago. RoundTable's investors include a number of universities, including Notre Dame, Northwestern University and University of Chicago, and companies such as 3M Co.

Ballaron and Gooding decided to go into business after their former employer, Bioglan Pharmaceuticals, was sold to Bradley Pharmaceuticals Inc. in 2004. Taking their experience gleaned at Bioglan, they started Aqua Pharmaceuticals as a low-cost seller of dermatological drugs. The company doesn't make any product. Almost all of the 50 employees are sales people.

After seeing a number of their co-workers fired after the Bioglan buyout, Ballaron and Gooding wanted to partner with a firm they felt comfortable with. More than six months after beginning discussions with RoundTable, they closed the deal.