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Home » Blogs » Ken MacFadyen

The Comeback Kids

By Ken MacFadyen, MU Blog

July 20, 2010

Castle Harlan's sale of Ames True Temper, announced yesterday evening, is another example of private equity’s ability to rally in the face of seemingly long odds. The company went from being labeled a “weakest link” by Standard & Poor’s to generating a roughly 2x return for the sponsor.

The company very easily could have been another victim of the credit crunch. Standard & Poor’s placed Ames True Temper on its “weakest link” list in December of 2007, a spot the company occupied for nearly two years, thanks to the consumer pullback and its exposure to construction. Through the sale to Griffon Corp., though, the exit should only help Castle Harlan as the firm continues to raise its latest fund.

In a lot of ways, the Ames True Temper exit parallels Oak Hill Capital’s investment in Duane Reade and Elevation Partners’ investment in Palm Inc. Both were basically declared dead by observers several times during the sponsors’ holding periods, yet each exit generated a profit, albeit just a small one in the case of Palm.

Ames True Temper probably doesn’t quite stack up to those two in terms of drama, but the exit should remind investors that private equity is still a patient asset class, even if the mantra was forgotten for two years starting in 2006.

This is why these types of ‘comebacks’ aren’t all that rare. It’s akin to playing Texas Hold ‘Em without the blinds. Sponsors are just going to hold out until they find a hand they like.

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