North Castle Partners and DLJ Merchant Banking Partners stand to profit nicely from their investment in the drug and alcohol treatment services sector, as the two private equity firms have agreed to sell CRC Health Group to Bain Capital in a transaction valued at $720 million.
The secondary deal, expected to close in early 2006, will grant North Castle and DLJ a 3.4x cash on cash return, and represents an internal rate of return of about 60%, according to a source close to the transaction.
Under the watch of North Castle and DLJ, CRC became the largest national provider of drug and alcohol treatment services in terms of the number of patients treated. The Cupertino, Calif.-based company, which reported revenue of about $230 million last year, operates more than 90 residential, outpatient and opiate treatment centers in 22 states and treats more than 20,000 people per day.
Greenwich, Conn.-based North Castle, CRC’s majority shareholder, began to have an interest in the behavioral health care and chemical dependency space in 2002, says Douglas Lehrman, a managing director at the firm. In August 2002 – after passing up one opportunity in the industry – the firm invested in CRC, inviting its LP, Credit Suisse First Boston, to co-invest through its respective private equity arm, DLJ.
Over the three-plus years North Castle and DLJ spent building the CRC platform, the two firms have expanded the size of the company’s facilities and broadened its treatment services to include extended care. Additionally, Lehrman says, the duo made eight add-on acquisitions, such as the $110 million buyout of Comprehensive Addiction Programs Inc. in February 2003 (which gave CRC its “largest national provider” status).
“Demand for [drug and alcohol treatment] services is continuing to grow, and the efficacy of these programs is clearly documented,” says Lehrman, who adds that, as CRC moves forward under Bain’s watch, there will be many more opportunities to grow the company using methods similar to North Castle’s and DLJ’s. “We built a wonderful business and it still has wonderful potential,” he said.
Once the sale to Boston-based Bain is complete, North Castle will have returned more than $750 million to its investors from its most recent three realizations, according to a spokesman for the firm.