Madison Dearborn to buy software firm Fieldglass

By Becky Yerak
Posted Sep. 27, 2010 at 4:27 p.m.

Private equity firm Madison Dearborn Partners LLC has struck its third deal in the past year to buy a Chicago-area company.

The Chicago-based buyout firm plans to acquire a majority stake in Fieldglass Inc., a software provider that helps such companies as Johnson & Johnson, American Airlines and GlaxoSmithKline manage their contract and temporary workforces. The deal values Fieldglass at more than $220 million.

It’s the fifth purchase that Madison Dearborn has made with its sixth fund, which raised $4 billion from universities, pension funds and other institutional investors.

Earlier this year Madison Dearborn also bought credit reporting company TransUnion and container provider BWAY Holding Co. Both are Chicago-area businesses. The $4 billion fund is currently 25 percent invested.

Industry research provider Staffing Industry Analysts found that, in its 2009 annual buyers’ survey, the use of software systems to help companies manage their contract and temporary workforces will grow to 81 percent in 2011, up from 34 percent in 2007.

Fieldglass was founded by Chief Executive Jai Shekhawat 10 years ago, three months before the Internet crash.  It’s headquartered in the Etrade building at Wacker and Adams, with 75 of its 135 employees based in the Chicago area.  As is customary for companies that Madison Dearborn buys, Shekhawat will remain with the company, and  existing management will also keep an ownership stake.

It doesn’t disclose revenues but said it grew by 50 percent in 2010, on the heels of a 33 percent growth spurt in 2009.  Its current investors include Grotech Ventures; BlueStream Ventures of Stillwater, Minn.; StarVest Partners of New York;  HLM Venture Partners of Boston; Prism Opportunity Fund of Chicago; and RBC Capital Markets.

Fieldglass’ business is increasingly global, with a quarter of the deals struck so far in 2010 occurring in Europe. It has customers in 70 countries and its software is produced in eight languages.

“What we need is a partner who can think big,” Shekhawat said.

The deal signals Madison Dearborn’s increasing interest in the business services sector, one of several investment areas overseen by  Managing Director James Perry.

Working with Perry is Doug Grissom,  a Madison Dearborn managing director who has been the point man on several of the business services deals, including Fieldglass, and who has spent the past two years reviewing all types of business services companies. Madison Dearborn expects to buy more business services firms because it believes they’re a growing part of the economy.

Grissom and Shekhawat worked together at consulting firm McKinsey & Co. and are also active in MetroSquash, a nonprofit program that uses squash to help poor children. MetroSquash is sponsoring the upcoming U.S. Open squash tournament in Chicago.

Other such deals that Madison Dearborn has done in the sector include  Nashville-based Asurion. It  provides cell phone replacement services, including warranties. Asurion, still a Madison Dearborn portfolio company, has succeeded at expanding into such markets as China and India. Grissom and Perry are on its board of directors.

Grissom also was instrumental in the deal for another Madison Dearborn portfolio company, Cbeyond, a provider of broadband communications services to  small- and midsized businesses. He also sits on that board.

Madison Dearborn’s current portfolio companies also include  Metro PCS, a wireless provider of voice and data services on a no-contract, flat rate, unlimited usage basis.

It’s also a past investor in PayPal.

Fieldglass’ key rivals include Beeline and Ariba.

It was originally named, but as it raised its second round of funding came up with a new name inspired by the military binoculars used to survey the terrain.

The proposed deal, which is expected to be completed in the next couple of months, was consummated after an all nighter that began Friday night in the offices of Katten Muchin Rosenman, Fieldglass’ law firm.

Madison Dearborn’s Perry said it’s still “a very uncertain time” in the economy.

“We probably look at a couple hundred opportunities  seriously in a year, and if we get to the finish line on one, two or three it has been a good year,” Perry said.

Madison Dearborn has raised more than $18 billion in capital since its 1992 founding.

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