Castle Harlan Manufactures RathGibson Deal –


Buyer: Castle Harlan

Target: RathGibson

Seller: Liberty Partners

Price: $260 million

Target Sales: $200 million

Target EBITDA: $43 million

Target Headquarters: Janesville, Wisc.

Financial Advisor: Seller: Harris Williams

Adding to its strength in manufactured products, Castle Harlan has purchased RathGibson, a maker of tubes that, among other things, pump oil from the bottom of the ocean.

The winner of an auction process run by Harris Williams for RathGibson’s former owner Liberty Partners, Castle Harlan paid $260 million, which works out to about 6x EBITDA and 1.3x revenue.

A combination of Gibson Tube and Rath Manufacturing in 1999, RathGibson makes premium welded stainless steel and specialty alloy tubing, which are sold to the power, oil and gas, food and pharmaceutical industries. It also develops specialty alloys-it has traveled a long way from where the firm started, supplying dairy farmers in Wisconsin.

The auction process was competitive, with strategic and financial buyers showing interest, though Bill Pruellage, the managing director who led negotiations for Castle, said it was “not a broad auction,” where Harris Williams “sent out a hundred books.” Harris Williams banker Derek Lewis said what is “broad” and what is “narrow” in an auction is relative, and that his bank contacted all parties with the financial wherewithal and interest to do the deal.

Pruellage said the main attractions to RathGibson were its diversified customer base of 1,000 clients, its premium products, and high free cash flows.

RathGibson, which recently expanded by putting a sales office in China, is also insulated, to some extent, from overseas competition, unlike many other types of manufacturers, said Pruellage. That’s because 80% of RathGibson’s products are custom linked, they need to be supplied in short time frames, and shipping costs are large, since when you’re shipping a tube, you’re shipping a lot of air.

The capital structure of the deal included $200 million of senior unsecured notes, an AB lending facility from GE, which was the incumbent lender, and $65 million from Castle Harlan Partners IV, a 2003 vintage, $1.16 billion fund. Castle drew $7 million from the GE loan at closing. With the deal, Castle Harlan Partners IV is about 50% invested, said Pruellage.

Going forward, “to the extent there are bolt-on acquisitions opportunities, we would look at them, but this is not really a buy and build,” said Pruellage. RathGibson’s entire senior management team will stay intact, he added.

Deals Castle has done in manufacturing and energy included the 2005 $527 million purchase of Polypipe, and the $111 million buyout of Ion Ltd.’s energy services subsidiary, also last year.

Harris William’s Lewis said Liberty picked Castle for a combination of value, speed and certainty to close, not to mention that “management liked them a lot.” Harris Williams has worked with Liberty before, in 2003 running an auction for PlayPower Inc.

There weren’t many comparables on the transaction, so neither Lewis nor Pruellage could say where the multiples fit into a broader industry, a fact that “is no different from selling any other niche, industry leader,” said Lewis.

Castle Harlan, founded in 1987, has a team of 11 managing directors, including its founders. Portfolio companies include Ames True Temper, a maker of lawn tools, Horizon Lines, a container shipping company and Perkins Restaurant & Bakery, which owns and franchises 483 restaurants.