Austar turnaround enriches CHAMP

Australia’s CHAMP Private Equity and its US partner Castle Harlan have made 6.5 times cash through the turnaround of pay TV business Austar United Communications.

Sydney-based buyout firm CHAMP Private Equity and its partner Castle Harlan of New York have sold their 44 percent stake in Australian pay TV operator Austar United Communications to Colorado-based Liberty Global in a deal reported to be worth around AU$567 million (€355 million; $426 million).

Paul Wilson, director, CHAMP

CHAMP director Paul Wilson told PEO the “incredibly complex” deal delivered around 6.5 times cash for the private equity backers, who had invested around AU$80 million in Austar in April 2003 in a deal led by Howard Morgan, a senior managing director of Castle Harlan in New York. CHAMP executive chairman Bill Ferris subsequently became chairman of Austar. 

The deal was agreed with US bondholders of the ailing company through a Chapter 11 bankruptcy process at a rate of seven cents in the dollar. Security for the bonds comprised a 51 percent stake in the Australian listed company. “This meant that, although it was a public company, we were able to exert the same sort of control we would normally have in the private arena,” said Wilson.

Prior to the deal being struck, CHAMP and Castle Harlan had worked for almost a year with former Austar CFO Jonathan Morphett “to understand the business issues and the financial structure”. Morphett provided advice in exchange for Austar shares, but did not take an ongoing role in the company once the deal was struck: the incumbent management team was retained in full.

CHAMP and Castle Harlan worked on the deal with UnitedGlobalCom (UGC), a Denver-based broadband services firm which in June 2005 merged with Liberty Global. UGC had been the major shareholder in Austar prior to CHAMP and Castle Harlan’s bond purchase. Wilson said the partnership combined private equity experience and disciplines with UGC’s experience of the pay TV sector.

Wilson said at the time of the deal, Austar was on the cusp of breaking even having spent huge sums building out its infrastructure. “It had very strong fundamentals but an inappropriate financing structure and had lost its way by getting involved in a number of non-core activities,” he said. The firm’s balance sheet was restructured following the re-negotiation of terms and conditions with its 14 senior debt lenders, and the company was re-focused on its core pay TV activity.

According to Wilson, the firm has a dominant position in the provision of pay TV services to Australia’s regions. During CHAMP’s period of ownership, pay TV penetration in Australia rose from around 20 percent to 25 percent of the population (still low by the standards of most developed economies). In October this year, Austar reported a net profit excluding one-offs of AU$23.5 million for the first three quarters.

CHAMP was formed in 2000 as a joint venture between Castle Harlan and Australian Mezzanine Investments. The latter was founded in 1970 by Australian venture pioneers Bill Ferris and Joseph Skrzynski. Earlier this year, CHAMP closed its second private equity fund on AU$950 million.

Last Friday, CHAMP announced the AU$100 million acquisition of Pacific Nursing Solutions, a nursing placement services business, in a secondary buyout from DB Capital.