Thursday, June 7, 2012

Value-added Private Equity Style: The Seven Hour Flip

Maybe I shouldn't tar the whole industry with that brush. As President Clinton says; "[we] should not cast private equity as "bad work.'"
From peHUB:
A subsidiary of Swiss investment firm Pala Investments AG has sued Castle Harlan Inc. in New York over its brisk acquisition and sale of Norcast Wear Solutions last July, Buyouts reported earlier today.
The lawsuit follows an earlier suit filed in Australian federal court against Bradken Ltd, the company that bought Norcast from Castle Harlan.

A quick refresher on this deal: On July 6, 2011, Castle Harlan bought Norcast, a Toronto-based supplier of mill liners and other products to the mining industry, from Pala Investments for $190 million. Within seven hours—perhaps the quickest “quick flip” in private equity history—Castle Harlan had sold the company to Bradken Ltd, an Australian competitor of Norcast’s that has a long history with Castle Harlan, for $215 million, according to the lawsuit.

Adding to the context is the decade-long relationship between Castle Harlan and Bradken. CHAMP Private Equity, Castle Harlan’s Australian affiliate, bought Bradken in 2001 took it public in 2004, as Buyouts previously reported. In 2006, Castle Harlan bought AmeriCast Technologies, a designer and manufacturer of steel castings, for $110 million, with Bradken taking a 19 percent minority stake. Less than two years later, Bradken bought the company for $288 million.

The lawsuit claims that Castle Harlan and Bradken entered into an agreement under which Castle Harlan would buy Norcast, immediately resell it to Bradken and keep Bradken’s role secret. Bradken’s motivation stemmed from its belief that as a strategic buyer it would likely have to pay a higher price than a financial sponsor like Castle Harlan, the lawsuit says.

Though the lawsuit doesn’t mention any documentation revealing an agreement between Castle Harlan and Bradken, Scott Balber, an attorney with Chadbourne & Park LLP representing Pala Investments, told Buyouts, “Based upon the timing of the purchase from us by Castle Harlan and the sale to Bradken, there can be no other explanation than there was an agreement to do the deal. It’s not possible for sophisticated purchasers like Bradken to enter into and close a transaction of this size in seven hours without having some due diligence in advance and conversations in advance.”...MORE