CHAMP Continues Investment Pace –

Castle Harlan Australian Mezzanine Partners’ recent acquisition of Bradken Group from the Smorgon Steel Co. furnishes the 18-month-old private equity group with Australia’s largest foundry, as well as the largest foundry capacity in the Southern Hemisphere.

The transaction, which was valued at approximately $93 million (A$185.5 million), marks the third acquisition for CHAMP, the partnership between one of Australia’s most established private equity firms, Sydney-based Australian Mezzanine Investments, and New York-based Castle Harlan Inc. It also signifies that the fund is roughly 25% invested.

Bradken is a major manufacturer of tools for the mining industry, mineral processing equipment, wheel assemblies for railroad cars and industrial castings. The company is based in Newcastle, New South Wales, and has annual sales of roughly $150 million (A$300 million). Smorgon Steel managing director Ray Horsburgh has called Bradken “a high-quality and profitable business,” but said the company was not a strategic long-term fit with its own metals recycling, steel making and distribution businesses. The steel company also has a high debt load, something it is currently seeking to lose by selling non-core assets.

CHAMP provided a majority of the equity for the purchase. Additional equity came from ESCO Corp. of Portland, OR, and Bradken management. J.P. Morgan Chase arranged the debt financing. ESCO, a metals technology company, licenses technology to Bradken for certain products.

Brakdken’s CEO will remain intact. In fact, Bill Ferris, executive chairman of CHAMP, said while his fund takes control positions in companies, it nonetheless will only invest in companies where it believes the management can help take the business forward.

“We put a lot of effort into backing the right team,” he said. Ferris will also act as chairman of Bradken’s holding company, Bradken Resources Pty Ltd.

Ferris went on to say that Bradken was previously a publicly listed company. It had been taken over by a much larger public company, “and it became sort of an orphan,” he said. By taking it private again, “we will in a sense be setting it free.” At the same time, an IPO is a possible exit strategy in three to five years, he said.

Ferris said he sees all four of Bradken’s businesses as steady growers in Australia, but CHAMP plans on expanding two of the divisions’ exports to the U.S. and Asia.

“Over the next several years we will encourage all of our companies to be active in the Asian region,” he said.

The transaction comes on the heels of another deal completed by CHAMP in late October, when the firm acquired Penrice Soda Products Pty. Ltd. in a transaction valued at approximately $43 million (A$85 million). Penrice is based in Adelaide, South Australia, and is the sole producer of soda ash in Australia with more than 85% of the market. CHAMP’s first acquisition was of Sheridan Australia, the country’s largest manufacturer and marketer of bed and bath linens. Sheridan has distribution in about 50 countries, including the U.S. and U.K.

U.S. firms have sought to invest more in Australia since at least 1998, even as the Australian buyouts market has itself matured. In March 2001, the Australian Venture Capital Journal reported investors had committed $4.9 billion to venture capital vehicles.

“The infrastructure is rapidly maturing for buyout financing,” said Ferris, who added that, “for the last 24 months private equity has been top of mind.”

Australia has approximately 50 to 60 managers of private capital, according to Ferris, around 12 major buyout firms with dedicated funds, as well as a few smaller firms.

The formation of CHAMP was announced in October 1999 by Castle Harlan and the Australian principals of CHAMP, Bill Ferris and Joe Skrzynski. The firm subsequently raised the CHAMP I funds, with private equity commitments totaling approximately A$550 million from primarily U.S. and Australian institutional investors.

“Castle Harlan, the whole New York end of the business, has been real value added for us here,” said Ferris. “It’s given us not just access to U.S. capital markets, but also banking networks and deal flow. We’re also exchanging personnel, which is important for building relationships.”