Consumer Co. Turnarounds Juice North Castle, J.W. Childs

North Castle Partners LLC and J.W. Childs Associates LP capped off the year with improbable turnarounds that should give the firms encouraging momentum going into 2011.

For North Castle, the good news came in a 5x return on its sale of formerly bankrupt diet company Atkins Nutritional Holdings. That should bolster the firm’s case with investors next year, when it hopes to raise $250 million for its fourth fund.

For J.W. Childs, the good news came from portfolio company Sunny Delight Beverage Co., the maker of SunnyD juice and other drinks that had struggled under the weight of its debt load since the firm bought the Cincinnati company in 2004. The company sold its Western European business in a deal that will allow it to erase its remaining debt, and it invested $70 million to upgrade the company’s manufacturing facilities and data systems. J.W. Childs, whose days looked numbered in 2007, has re-grouped and is now looking for new deals with a $125 million special purpose acquisition company. It will likely try to raise a proper fourth fund after abandoning an effort to raise $2.5 billion back in 2007.

Of the two deals, North Castle’s journey with Atkins, purveyor of the meat-heavy, carbohydrate-light diet that was all the rage early last decade, was more of a pure turnaround story. The company filed for bankruptcy in 2005, two years after Parthenon Capital Partners bought it in a $533 million deal with GS Capital Partners as a co-investor. Both firms are said to have lost most of their investment, which was reported to have been around $150 million each.

North Castle bought the company from its lenders in 2007 and set about improving the taste of its products, setting up a scientific advisory board to review science on the diet, helping to incorporate healthier fats, proteins and leafier greens into its products, and re-designing the company’s Web site. The firm re-launched the brand in 2008. Since then, the company’s sales doubled to $300 million. “It was a great investment,” Managing Director Lou Marinaccio told Buyouts. “It performed terrifically right out of the gate.”

Sunny Delight’s story is less a pure turnaround story than one of stabilization that should allow J.W. Childs to finally exit the company, which it bought in 2004 from Procter & Gamble with $150 million in equity. In 2007, ratings agency Standard & Poor’s put the company on its “Weakest Links” list of companies—those most at risk of default—given its substantial debt load and difficulty keeping costs under control amid higher bottle prices.

Following the sale of its Western European business, the company will be debt free and it will generate between $400 million and $500 million of annual revenues, Jeff Teschke, a partner at J.W. Childs, told Buyouts. Teschke, who conceded the investment is getting long in years, said the firm has fielded many a call from investment bankers about selling the company but has no immediate plans to do so.

Perhaps more important, Sunny Delight’s performance for J.W. Childs is the latest beat from a pulse that looked close to flat-lining in 2007.

Back then, after push-back from investors, the firm shelved a plan to raise $2.5 billion for its fourth fund. A few of its companies either defaulted on debt payments or were downgraded by the ratings agencies. And several professionals, including Teschke, left the firm. Some started their own shop, West Hill Partners, while a senior associate defected for TA Associates. Teschke returned to J.W. Childs in November 2009 after West Hill failed to gain traction.

Teschke said the firm has rebuilt its team and is re-focused on its core strategy of investing in retail and consumer companies. He also suggested the firm had erred in trying to raise such a huge fourth fund, which would have been nearly double the size of its previous fund, a $1.75 billion pool of capital.

The firm and co-investor BAML Capital Partners recently sold a company, sales and marketing agency Advantage Sales and Marketing LLC, to Apax Partners Worldwide.

In November, JWC Acquisition Corp., the firm’s special purpose acquisition company, raised $125 million for new deals. J.W. Childs has not done a stand-alone acquisition since 2008, although it has done several add-on acquisitions.

“It was a very quick process, it allowed us to raise capital in a matter of weeks,” Teschke said of the SPAC, adding that the firm would “certainly” look towards raising a traditional fund once it is deployed. The firm has 21 months to deploy the SPAC.