Castle Harlan Inc.’s Australian affiliate fund, Castle Harlan Australian Mezzanine Partners (CHAMP), this month purchased Penrice Soda Products Pty. Ltd. for approximately 85 million Australian dollars (US$43.3 million).
The deal was financed with equity from CHAMP I, a A$550 million (approx. US$314 million) fund that closed in May 2000, and with debt underwritten by J.P. Morgan Chase. CHAMP took nearly 90% of the company in the buyout.
Penrice had annual revenue of approximately A$120 million (US$61.1 million) last year. CHAMP bought the company at approximately five times Ebitda.
Penrice, based in Adelaide, South Australia, manufactures soda ash (an essential ingredient in glass) and baking soda, which is used for commercial, pharmaceutical and industrial applications. “The business has performed very well despite difficult conditions,” said Ben Sebel, vice president at Castle Harlan. “It has a leading share it is basically the sole manufacturer [of soda ash] in Australia.”
As a lone player in the soda ash space in Australia, Penrice has a strong foothold on its market, therefore ensuring a relatively painless financing process. “The syndicate was fully underwritten, and there were a lot of investors who were interested in buying the paper because the business is so stable and so well-known in Australia,” said Sebel. “I think the leverage market overall is difficult, but we didn’t have a lot of trouble getting this deal financed.”
Sebel said that Castle Harlan was also attracted to the management team, which also invested in the transaction. In fact, the acquisition spurred a reunion between the company and two former managers. Harris Chemicals owned Penrice from 1996 until it was sold to IMC Global in 1998. Under the ownership of Harris Chemicals, former Chairman George Harris and former Chief Operating Officer Michael Boyce ran Penrice. Now with IMC Global’s sale to CHAMP, Morgan and Harris are returning to Penrice as investors and co-chairmen.
Looking ahead, CHAMP and the management of Penrice are anxious to add value to the company. “There is a lot of incremental capacity that we can add to the business,” said Sebel. “The management are very excited to be separated from the parent and to be effectively true owners of the business”
Sebel said the company is actively looking for acquisitions as well.
Last month, CHAMP agreed to purchase the Bradken mining, railway and steel-casting division of Smorgon Steel Group for approximately A$185 million (US$94.2 million). Upon completion of the deal, Bradken, based in Newcastle, New South Wales, Australia, will aggressively pursue growth as it transitions from a non-core asset of Smorgon to a core business for CHAMP, according to a letter to Bradken customers from its Chief Executive Brian Hodges.
The letter quotes William Ferris, chairman of CHAMP, saying, “We are delighted to be backing such a high quality management team led by . . . Hodges. We believe this management buy-out will support and enhance Bradken’s leadership position in its important niche markets. Importantly, the business will be capitalised to enable new investment in plant and equipment and to ensure continued growth.”
Castle Harlan, based in New York, formed CHAMP in October 1999 with Australian Principals Ferris and Joe Skrzynski to invest in companies in Australia, New Zealand and other areas in the Pacific Rim. CHAMP I completed its first buyout in November 2000 when it acquired Sheridan Australia, a manufacturer of bed and bath linens, for approximately A$135 million (US$75 million).