March 10 (Bloomberg) -- Goldman Sachs Group Inc. agreed to invest as much as $65 million in closely held Management Dynamics Inc., whose software helps companies automate international shipments.
The investment by Goldman Sachs’s special situations group will enable East Rutherford, New Jersey-based Management Dynamics to pursue an acquisition, Chief Executive Officer Jim Preuninger said yesterday in a phone interview. Goldman Sachs provided $15 million in equity up front and will supply as much as $50 million more, depending on the acquisition size, he said.
“We have a short list of companies that we’re talking to, we haven’t finalized a deal right now,” Preuninger said. “It would be a software company that had a product or two that we don’t have but would be very complementary and would fit in well with our ambition of automating the full order-to-pay life cycle of a global transaction.”
For Goldman Sachs, the fifth-biggest U.S. bank, the deal shows that the special situations group continues to make new investments amid uncertainty over how government implementation of the so-called Volcker Rule may restrict deals with the firm’s own capital. David Viniar, Goldman Sachs’s chief financial officer, told analysts in October that the “predominant” part of the special situations group is “a lending business.”
Preuninger, who founded the company in 1989, said Goldman Sachs will have a minority stake and declined to specify the size. He and his twin brother John are the biggest shareholders, he said. Michael DuVally, a spokesman for the New York-based bank, declined to comment.
Preuninger wouldn’t disclose Management Dynamics’s financial information, other than saying that it is profitable.
“Even in the shaky economic times that everybody went through, we had great years in ‘08, ‘09 and 2010,” he said. “Putting another one on top of that is important to us. I think we’re well on our way to doing that.”
The company is not using Goldman Sachs or any other investment bank as an adviser on the acquisition, he said.
Preuninger said he was approached by a Goldman Sachs employee at a conference in San Francisco hosted by investment bank Thomas Weisel Partners Group Inc. more than a year ago. Before Goldman, Management Dynamics had equity investments from venture-capital firms Cross Atlantic Capital Partners and UpData Partners, he said.
Preuninger previously worked in sales and marketing for International Business Machines Corp., according to the software company’s website. John Preuninger, president and chief operating officer, was a strategy consultant at Monitor Company before joining in 1990.
Management Dynamics’s clients include Apple Inc., Cisco Systems Inc., Honeywell International Inc., and Wal-Mart Stores Inc., Jim Preuninger said. They use the software in more than 70 countries and trade across 122 nations, he said.
Gene Yoon, a managing director at Goldman Sachs, is joining Management Dynamics’s board. Yoon is head of private equity for Goldman Sachs’s Americas special situations group, according to a biography published on the Management Dynamics website.
The company, which employs about 400 people, has discussed whether to pursue an initial public offering, Preuninger said. While the company is big enough to proceed with an IPO, that’s not the plan, he said. Private equity investors are typically patient as long as the company makes progress, he said. Goldman Sachs may be even more patient, he said.
“A lot of times, a private equity investor or venture capitalist has a lot of the money come from limited partners, who have provided that capital to them with a time frame in mind, it might be 10 years,” Preuninger said. “Goldman’s capital all comes from Goldman Sachs, so they don’t have the same kind of pressures to turn over their capital.”
Goldman Sachs in January changed the way it reports financial results, creating a division called Investing and Lending. The special situations group, which buys distressed debt and equity and makes loans, has moved most of its holdings out of the firm’s fixed-income, currencies and commodities division into the new segment.
Investing and Lending contributed 19 percent of Goldman Sachs’s 2010 revenue, making it the second-largest division on that basis after institutional client services, or sales and trading, according to Goldman Sachs’s annual 10-K filing with the U.S. Securities and Exchange Commission.
In 2009, Investing and Lending accounted for 6 percent of revenue, the filing showed, and in fiscal 2008 it had negative revenue of $10.8 billion, making it the only money-losing division that year.
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