Turnaround Shop To Net 15x on Adult Incontinence Deal

KPS Capital Partners LP expects to return about 15x its investment in Attends Healthcare Inc. when it closes its sale of the company in the third quarter, according to a source.

The New York-based firm, known for buying manufacturing companies about to flatline, announced yesterday an agreement to sell the maker of incontinence briefs, pads and other products to Domtar Corp. for $315 million.

The deal demonstrates that sponsors are still able to sell companies despite turmoil in global markets, at least given the right situation. Strong performance throughout the Great Recession and the fact that Domtar has a lot of cash on hand enabled the Attends deal to avoid any concerns, Raquel Palmer, a partner with KPS Capital, told Buyouts.

“We were not concerned with the turmoil in the market,” Palmer said.

The company, then known as PaperPak Products Inc., was losing money when KPS Capital bought it 2007, investing $20 million of equity. The firm re-branded it; upgraded its manufacturing equipment; cut unprofitable products and expanded into new lines; cut freight costs by bringing its freight management in-house; and closed a manufacturing plant in California that saved $5 million. The firm has also benefited from the broader trend of an aging U.S. population in greater need of incontinence products, she said.

“Our CEO Mike Fagan was fond of saying that every day he woke up he had 10,000 new customers,” Palmer said.

Today Attends generates annual sales of approximately $200 million and an estimated run-rate EBITDA of $39 million, according to a Domtar press release. The Greenville, N.C.-based company employs 330, which Palmer estimated was about the same or a bit less than the number of people the company employed when KPS Capital bought it.

KPS Capital also sponsored two recapitalizations of the company, which included cash distributions of $35 million and $60 million.

Since early 2010, KPS Capital has taken full advantage of the revived capital markets, completing an aggregate of $1.6 billion of recapitalizations which included more than $640 million in cash distributions to KPS Capital. Another notable example was its $465 million recap of copper manufacturer Global Brass & Copper in August 2010, which included a $164.8 million distribution.

Bernard Vaughan is a Senior Editor at Buyouts Magazine. Follow his tweets @BVaughanReuters.