Investing in niche businesses exhibiting our most valued investment criteria, yet serving an otherwise less attractive industry sector might seem like a challenging recipe for success. That said, ABRY’s investment in Billing Services Group proved such a dynamic can generate lucrative returns.

After years of long-distance pricing declines, the surge of wireless penetration and the emergence of all-inclusive “bucket” phone plans, long-distance telephony has been a challenging business. However, within this difficult industry, a limited number of outsourced processing businesses provide mission-critical functions including computing and communicating third-party long distance and other service providers’ customer charges to local phone companies for inclusion on their end customer’s phone bill. In 2003, ABRY met the owner-management team of Avery Communications, one such processing company. Avery’s CEO Patrick J. Haynes, III, had a strategic vision to acquire its much larger direct competitor, Billing Concepts, Inc. (BCI), but needed a financial partner who shared his vision.

We embraced management’s strategy. The companies benefited from high recurring revenues, attractive barriers to competition in the form of contracts with the necessary 1,300 local phone companies and hardwired access directly into their billing systems, high customer retention due to the complexity of the service offering, and long-term contracts with its long-distance and other customers. Also, the combination of BCI with Avery enabled enormous expansion in cash flow margins due to the elimination of over $10 million of duplicative processing infrastructures, and economies of scale generated by combining the companies’ processing volumes. ABRY invested in common equity and mezzanine capital and actively arranged senior debt financing to acquire BCI at a time when debt providers showed an allergic reaction to anything telecom related. Under the leadership of Haynes and the execution of COO Michael Labedz, EBITDA increased by over 40% within twelve months of the initial business combination.

Shortly after our investment, BSG completed a highly successful IPO, resulting in a significant realization for ABRY and the management team. The relationship with management did not end with the IPO. Several months later, Haynes and Labedz, who left BSG to pursue their interest in healthcare services, approached us about executing a roll-up of healthcare information and services businesses. Like telecommunications, the healthcare service sector is highly fragmented, regulated, and requires processing millions of complex transactions; however, unlike long-distance telephony, the sector is growing rapidly. In December 2006, the partners made their first investment in Companion Technologies, and several months later acquired Smart Document Solutions, forming HealthPort, Inc., a leading provider of release of information services and other healthcare information services for hospitals and community healthcare centers.