NY Shop Banks 2x+ On Special Ed Co.

Target: Education Services Division

Price: Undisclosed

Sponsor: The Riverside Co.

Seller: Charterhouse Group

Financial Adviser: Sponsor: M&I Bank, Babson Capital; Seller: BMO Capital Markets Corp.

Legal Adviser: Seller: Proskauer Rose LLP

Charterhouse Group Inc. generated a return of between 2x and 3x its invested capital in Camelot Education, an Austin, Texas-based provider of for-profit education services for special needs and at-risk children, according to a source familiar with the deal’s financials.

The return should be a good boost for Charterhouse as it asks investors to commit to its latest fund. The firm seeks to raise $500 million for its fifth fund, as Buyouts previously reported.

The New York-based firm sold the company to The Riverside Company, which bought it for an undisclosed amount from its Riverside Capital Appreciation Fund V, a $1.17 billion pool of capital Riverside closed in 2009. Riverside typically buys with enterprise values under $200 million.

Camelot is comprised of two types of schools: alternative education, for children with behavioral issues or other personal problems such as drug abuse or pregnancy; and therapeutic day schools, which teach life skills to children with autism, emotional disabilities and mental retardation, among other conditions. Growth with the latter is driven by an increase of children with autism, which regular education programs are ill-equipped to deal with, said Taylor Cole, a managing director at Charterhouse. The alternative education segment is driven by truancy and drop-out rates, which are going up nationally, Cole said.

Charterhouse generated its return mainly by expansion. It bought the company in early 2006, investing out Charterhouse Equity Partners IV, a $447 million vehicle it closed in 2004.

At the time, Camelot ran six schools in three states. Since then, the firm has helped the company expand to 15 schools in 6 states, nearly tripling its EBITDA, according to Cole, who declined to provide the EBITDA numbers. “It was simply a function of taking programs that work as demonstrated in the three states we were in initially and going out and convincing other school districts in other states that these work,” Cole said.

Charterhouse still retains a part of Camelot called the Systems of Care division, which comprises residential treatment centers for special needs youth with Autism, Asperger’s, and other conditions. There is some overlap of conditions children deal with in both divisions.

For Riverside, Camelot is an addition to its education portfolio. The firm currently owns also owns seven other education companies, including Wiz Korea, a preschool education provider in Korea.