NY Shop Scores 4.5x Return; Fundraising Hits Home Stretch

Target: United Malt Holdings

Price: $655 million

Sponsor: GrainCorp Ltd.

Seller: Castle Harlan Inc., CHAMP Private Equity

Legal Adviser: Seller: Mallesons Stephen Jaques, White & Case LLP

Castle Harlan recently scored a substantial return in its first transaction in 15 months, giving a boost to the New York shop’s prolonged efforts to finish raising its fifth buyout fund.

The New York-based buyout shop and its Australian affiliate, CHAMP Private Equity, sold United Malt Holdings, a maker of malt for beer and liquor, to GrainCorp. Ltd., an Australian bulk-grain handler and trader. The sale price was $655 million.

Castle Harlan seems to have done a good job transforming the Omaha, Neb.-based company from a commodity grain processor to a processor of malt used by distillers and breweries. Under the buyout shop’s ownership, EBITDA climbed to $114 million from $27 million. After owning the company for three years, Castle Harlan and CHAMP generated a 4.5x return on their combined investment and an internal rate of return of approximately 80 percent, according to the firm.

Castle Harlan and CHAMP put in $90.54 million in equity to buy the company in September 2006 from Conagra Foods Inc. and Tiger Brands, of South Africa. Castle Harlan funded approximately 55 percent of the equity, while CHAMP funded the remaining 45 percent. David Pittaway, a senior managing director at Castle Harlan, declined to say how much debt the firms used in the deal.

United Malt includes four independently operated malting companies: Great Western Malting in the United States, Barrett Burston Malting in Australia, Canada Malting in Canada, and Bairds Malt in the United Kingdom. Castle Harlan guided the company through two add-on investments, including the purchase of North Country Malt Group, a small distributor of brewing products that strengthened United Malt’s position with microbrewers. The company also expanded its production capacity, adding a new malt house in Scotland while another is under construction. Going forward, United Malt expects to boost its production by 14 percent come early 2011.

The sale of United Malt came at a particularly welcome time for Castle Harlan, which, like many firms in the last two years, has struggled to reach its fundraising target for its latest investment vehicle. Buyouts reported in March that, after more than a year of fundraising, the firm had gathered less than half—$684 million—of its $1.5 billion target (see related story, p. XX).

The sale of United Malt marks the first transaction for Castle Harlan since August 2008, when it sold AmeriCast Technologies, an Atchison, Kan.-based maker of complex steel castings. That deal was also a winner, generating more than 3x invested capital and a 90 percent gross IRR.

United Malt, like AmeriCast, is a portfolio company in Castle Harlan’s fourth fund, a $1.2 billion pool the firm closed in 2003.