Castle Harlan Latest Investor In Baker & Taylor

Target: Baker & Taylor

Sponsor: Castle Harlan

Seller: Willis Stein & Partners

Purchase Price: $455M

Financial Advisor: Seller: Goldman, Sachs & Co.

Legal Counsel: Sponsor: Schulte Roth & Zabel LLP; Seller: Kirkland & Ellis LLP

The book distribution space is not generally considered an easy place to make money. On one end, distributors need to cater to the big-box retailers such as Wal-Mart Corp. and even Barnes & Noble, which have been known to squeeze their suppliers, while on the other end there’s the constant threat of new forms of portable entertainment, including compact DVD players, laptop computers and digital music. That has not stopped private equity firms from trading books retailer Baker & Taylor amongst themselves and pocketing a tidy profit in doing so.

The latest to buy the books distributor is New York-based Castle Harlan, which has agreed to buy the company in a transaction valued at $455 million. The seller, Willis Stein & Partners, is exiting the company via a Goldman Sachs & Co.-run process. The deal is expected to close before the end of July.

Willis Stein reportedly made a $115 million equity commitment when it acquired the business from The Carlyle Group in a $255 million secondary buyout. Considering the initial investment, that would put Willis Stein’s return at no less than 4x its original equity stake, although the firm is said to have executed at least one dividend recap throughout its holding, which would likely put its return above that figure. Prior to Willis Stein, Carlyle had controlled the business since 1992.

Castle Harlan Vice Chairman Gary Appel told Buyouts that Baker & Taylor’s upward momentum was one feature that appealed to the firm. “It’s a strong platform that has demonstrated organic growth and the ability to acquire,” he said.

The company is expected to generate about $1.6 billion in revenues this year, up from about $1.2 billion when Willis Stein acquired the company in 2003.

Founded almost 180 years ago as a bindery and subscription book publisher, today the Charlotte, N.C.-based Baker & Taylor distributes books, video and music products to institutions such as academic and public libraries as well as to retailers—both Internet-based and brick-and-mortar shops.

Appel said he was most interested in the library side of Baker & Taylor’s business model, noting that the segment has demonstrated continued growth and holds a breadth of market opportunities.

“Baker & Taylor’s sales to libraries continue to grow, even as library budgets continue to decrease,” he said, citing that value-added services, such as helping librarians select and create book collections on specific topics has been one area in which the company differentiates itself.

Add-on acquisitions, too, have been an important instrument of growth on the institutional side of the company’s business. The last two years have seen Baker & Taylor consummate three such deals, including the buyouts of British books exporter Delta International Book Wholesalers; scientific, technical and medical book wholesaler J.A. Majors; and Spanish-language distributor Libros Sin Fronteras.

Also vital to Baker & Taylor’s growth is its ability to change with technology. “When the Internet began to encroach on the book-selling world, Baker & Taylor seamlessly got right in there and became the go-to place for online sales,” Appel said.

Castle Harlan will acquire Baker & Taylor with equity from Castle Harlan Partners IV, which closed in 2003 with capital commitments of $1.2 billion. That fund, according to a Castle Harlan spokesman, is about 60% invested. —A.N.