Castle Harlan Flips Company In One Day

Castle Harlan Inc. appears to have leveraged its long history with an Australian company to pull off a stunning one-day flip of a company.

On July 6, the New York-based shop bought Norcast Wear Solutions, a supplier of mill liners and other products to the mining industry, from Pala Investments for $190 million. On July 7, the firm agreed to sell the Toronto-based company to Australian industrial company Bradken Ltd for A$202 million ($217 million).

Castle Harlan could be looking at a gain on its equity of about 47 percent, and a return multiple of about 1.5x, assuming it invested about 30 percent equity—a rough average for private equity commitments today—in the $190 million acquisition of Norcast. Its internal rate of return, however, would be extraordinary.

The firm has a fairly long history of dealing with Bradken. CHAMP Private Equity, Castle Harlan’s Australian affiliate, bought Bradken in 2001 for $94.2 million, according to Capital IQ. The firm exited the company via an initial public offering in 2004, according to CHAMP’s Web site. Then, in 2008, Castle Harlan sold AmeriCast Technologies, a designer and manufacturer of steel castings, to Bradken for $288 million, according to Castle Harlan’s web site. The firm earned about 3x its investment in Americast after holding it for less than two years, according to a 2010 Buyouts profile of Castle Harlan. Bradken also had purchased a 19 percent minority interest in AmeriCast when Castle Harlan bought it.

Howard D. Morgan, co-president of Castle Harlan, said in a prepared statement: “In the last ten years Castle Harlan and our Australian affiliate CHAMP have successfully partnered with corporate co-investors many times; this includes partnering with Liberty Media in the acquisition of Austar, partnering with ESCO in the acquisition of Bradken, partnering with Bradken in the acquisition of AmeriCast, and now partnering with Bradken again in the acquisition of Norcast. As private equity lead investors, we enabled these corporations to participate in investments that for many reasons they couldn’t or didn’t want to lead at the time. In several instances the corporate partner decided to own the business outright, and we at Castle Harlan saw immediate value-added from the partner and the possibility of a long term strategic fit.”

Interestingly, Castle Harlan did not put out an announcement for either deal, perhaps because quick flips carry a negative connotation for an industry whose firms prefer to characterize themselves as patient stewards of growth for its companies. Pala Investments, which describes itself as a “multi-strategy investment company” focused on the mining sector, announced the completion of its sale of Norcast on July 6. Bradken announced its agreement to buy Norcast the following day.

John Castle, the former CEO of Donaldson Lufkin & Jenrette Inc., and Leonard Harlan, a former vice president at DLJ, founded Castle Harlan in 1987. The firm is currently investing from its fifth fund, which closed with $800 million in commitments last year.