CCMP Eyes 6x Return On Nowaco Sale

Target: Nowaco

Price: €250 million ($360 million)

Sponsor: Bidvest

Seller: CCMP Capital, Bancroft Private Equity

Financial Adviser: Sponsor: HSBC; Seller: J.P. Morgan plc

Legal Adviser: Sponsor: Baker & McKenzie LLP; Seller: Weil, Gotshal & Manges LLP

CCMP Capital Advisors stands to earn a solid return if its recent agreement to sell Nowaco, a wholesaler for food service and independent retail markets in Eastern Europe, goes according to plan.

Executives at the firm, a former affiliate of JPMorganChase, expect the sale to return 6x the firm’s equity investment and a 90 percent gross IRR, according to sources familiar with the transaction.

The New York-based shop announced Aug. 3 that it and Bancroft Private Equity, a London-based buyout and venture capital firm, had agreed to sell Nowaco to Bidvest, a South African company, for €250 million ($360 million). The firms bought the company in August 2005 for €90 million, according to CapitalIQ.

Nowaco, founded in 1992, distributes frozen food products in the Czech Republic. The deal also includes Farutex, a Nowaco division that distributes food in Poland. The transaction is subject to European Union competition clearance and is expected to close in the third quarter. The company has about 3x senior leverage on its balance sheet and annual EBITDA of approximately $35 million.

CCMP Capital professionals generated the return by professionalizing the business—adding depots, investing in new trucks and in-store freezers, and expanding its reach across casual dining restaurants, for example—and exploiting a market poised for food price inflation, Tom Walker, a senior member of CCMP Capital’s Europe team, explained to Buyouts. While Czechs and Poles consume a similar volume of food, they pay much less for it than their neighbors in Western Europe. This gave the company more flexibility to offer a higher priced mix of products. “We were betting food price inflation in the Czech Republic would outpace Western Europe and that’s what happened,” Walker said.

For CCMP Capital, the sale would br the latest in what has been a barrage of exits since spinning out of JPMorgan Chase in July 2006. Since then, the firm has returned $6.1 billion while only investing $1 billion in four new deals, Allison Cole, vice president of investor relations, told Buyouts.

The firm’s most recent exit before Nowaco was Safety-Kleen Europe Ltd. in June 2008. Cole said the conservative strategy toward acquisitions during the buyout boom has helped CCMP Capital avoid much of the carnage many of its peers are currently dealing with. The firm is not without its bruises, however: In February, its portfolio company in the packaging industry, Pliant Corp., filed for Chapter 11 bankruptcy protection.

Walker said the firm is now aggressively pursuing acquisitions. It’s investing from the $3.4 billion CCMP Capital Advisors, which closed in 2006 and is about 26 percent drawn down. CCMP Capital’s most recent investment came in January 2008, when it formed Legacy Hospital Partners Inc., a health care platform that seeks out joint ventures with not-for-profit hospitals to turn around cash-strapped acute-care facilities, as previously reported in Buyouts.