Done Deals – Wellspring Fastens $115M Diaper Recap –

Wellspring Capital Management LLC closed on its acquisition of Paragon Trade Brands Inc., investing $115 million in equity.

Also part of the recapitalization is $146 million in high-yield debt and a $95 million revolving credit facility with Citigroup, of which approximately $15 million was drawn at closing.

Paragon, which had net sales of $500 million in 1999, is the leading maker of store brand infant disposable diapers in North America. The company also makes feminine care and adult incontinence products. Paragon has joint ventures in Mexico, Argentina, Brazil and China for the sale of diapers and other absorbent personal care products.

“It’s consistent with our investment strategy of buying good assets that are either poorly positioned because of external events or undermanaged,” said David Mariano, a partner at Wellspring Capital.

Mariano said that the baby diapers market is mature, but the firm will focus on continuing to penetrate large retailers like Wal-Mart and K-Mart and large grocery chains with their own labels. The firm plans organic growth and expansion through acquisitions. Mariano said Paragon will aim to consolidate baby diaper companies as well as develop newer ancillary products in adult incontinence and feminine care.

Paragon had declared Chapter 11 bankruptcy in January 1998 after losing a patent infringement lawsuit.

Wellspring partners include Ontario Teacher Pension Plan Board and Lexington Partners Inc.

Wellspring, based in New York, has over $350 million under management and focuses on value investing including management buyouts, recapitalizations, reorganizations and turnarounds.