North Castle’s CRC exit yields hefty return

In a deal that will yield a more than three times return, North Castle Partners has agreed to sell drug and alcohol treatment centre CRC Health Group. Bain Capital acquired the business in a roughly $720m deal.

After roughly three years in the North Castle Partners portfolio, CRC Health Group has been acquired by Boston-based Bain Capital. The $720 million sale will give North Castle its largest return to date, a profit of more than three times its equity, according to reports.

Douglas Lehrman, managing director, North Castle Partners

North Castle led the 2002 purchase of CRC, with DLJ Merchant Banking joining the Greenwich, Connecticut-based firm on the investment. North Castle also brought on more investors in the years following, including the Ontario Municipal Employee Retirement System and Northwestern Mutual Life Insurance Company.

Commenting on the investment, North Castle managing director Douglas Lehrman told PEO, “When we started looking at the industry, we identified the space as a fragmented and, sad to say, a high-growth area. There’s a tremendous social need for these facilities right now…We built CRC to provide services across the spectrum, geographically and on a socio-economic level.”

The company experienced substantial growth during North Castle’s ownership. Sales grew by more than 330 percent, expanding from $40 million in 2002 to $173 million last year, while annual EBITDA climbed from $8 million to $46 million, according to a source close to the deal.

The expansion, Lehrman said, came through putting more money into the company’s existing facilities and further investing in its infrastructure, as well as through acquisition. Most notably, CRC acquired the reputed Sierra Tucson facility earlier this year, a rehab centre best known for its Hollywood clientele.

The Cupertino, California-based CRC operates more than 90 residential, outpatient and opiate facilities in 22 states throughout the US.

The sale of CRC comes ahead of a likely fundraising drive for North Castle. Lehrman indicated that the firm could begin raising its next fund possibly “in the early part of next year”. He also said that the firm is anticipating at least one more exit prior to the fund launch.

North Castle, a healthy living specialist, has also invested in nutrition product maker Experimental & Applied Sciences (EAS), beverage supplier The Naked Juice Company and the Equinox fitness chain, among other investments.

Bain Capital, meanwhile, has also been active in the healthcare space in the past. Previous deals in the sector include investments in medical-waste management outfit Stericycle, senior living facilities company Epoch and Duane Reade, a pharmacy retailer.

Debevoise & Plimpton provided legal counsel to the sellers, while JP Morgan and Merrill Lynch provided financial advice. The deal is expected to close early next year.

CRC had initially pursued a dual path strategy, and had looked at the possibility of an IPO before deciding on the sale.

Law firm Ropes & Gray, meanwhile, advised Bain, which has lined up a lending syndicate of Citigroup, JP Morgan, Merrill Lynch and Credit Suisse First Boston to provide financing.

Bain declined comment for this story.