Charterhouse Sells Supplement Platform, Plots Next Fund

The IPO window may close, but you can relax: The strategic exit isn’t dead. Today, New York-based Charterhouse Group sold Amerifit, a nutritional supplement platform, to Martek Biosciences, a listed, Maryland-based biosciences company, for $200 million.

The exit returns money to Charterhouse Equity Partners IV LP, a $447 million pool raised in 2004. It marks the firm’s third exit from that fund, out of 11 total platforms. The fund is around 90% deployed, which, coupled with its exit streak, can only mean one thing: Fundraising time.

A source familiar with the situation said the firm plans to launch fundraising in the second quarter. No target has been set, as Charterhouse is currently soliciting input from its investors about an appropriate fund size. The target for Charterhouse’s fifth fund is of particular interest, because the firm cut its fund size by half between its third and fourth funds. Charterhouse Equity Partners III LP, a 1998 vintage, had $1 billion in commitments. The drop in size occurred because the firm’s placement agent, Merrill Lynch, had its entire placement team poached by Lazard in 2003, just before Charterhouse went to market. The firm retained many of its large institutional investors, including AlpInvest, J.P. Morgan and Goldman Sachs.

So there are numerous factors at play in determining the size of Charterhouse’s next fund. On one hand, it has managed much larger funds and makes investments suited to a $1 billion fund (the roughly estimated $145 investment in Amerifit is pretty large for a $447 million fund). On the other hand, the fundraising market is at its slowest level since 2003, with emboldened LPs turning down funds just because their targets are unrealistic. So the target Charterhouse picks may be crucial to the firm’s future. I’ll be equally interested to see which placement agent the firm goes with…

Back to the deal at hand. Amerifit makes medicine for the prevention of urinary tract infections as well as a menopause symptom supplement. Its products are carried in mass, club, drug, grocery and specialty stores. Charterhouse Group purchased the company in 2005 for $80 million, using a significant portion of equity in the deal, Partner David Hoffman said. Since then, the firm invested additional capital in two platform buys. In 2005, the firm purchased the women’s health products division of Polymedica Corporation’s for $45 million, and in 2006, the firm purchased Culturelle, a probiotic nutritional supplement, from ConAgra Foods for under $20 million, according to reports at the time. At that point, the company took on additional debt and brought in Bear Stearns Merchant Banking (now Irving Place Capital) as a co-investor, but Charterhouse did not complete a dividend recap. So that means, debt notwithstanding, Charterhouse may have invested up to $145 million in Amerifit.

Unfortunately for my wild guessing purposes, Hoffman would not comment on the exact return Amerifit earned Charterhouse, except to say “it’s a very successful deal for us.” He said under Charterhouse’s ownership, the company more than doubled its revenue and tripled Ebitda “for key product lines.” Of course, that metric is hard for me to publish; narrowing performance figures to something like “key” product lines seems a bit self-serving if we have no idea how “non-key” product lines performed. Hoffman said the firm had de-emphasized or discontinued non-key brands over time.

Charterhouse hired Deutsche Bank and UK advisory shop Nicholas Hall & Company to sell the business last fall after receiving a handful of unsolicited approaches for the company. The firm ran a “limited process,” achieving a deal multiple of “above the market average,” Hoffman said. Martek, which develops nutritional products, some of which are used in infant formula, trades at a price-to-earnings ratio of 16.94. For comparison, nutritional supplement maker NBTY trades at a price-to-earnings ratio of 18.63.