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Carlyle gets a boost from an LBO multivitamin

Carlyle Group co-founder and Managing Director David Rubenstein speaks at the panel discussion "Global Opportunities in Private Equity" at The Milken Institute Global Conference in Beverly Hills, California May 2, 2011. REUTERS/Fred Prouser

NEW YORK (Reuters Breakingviews) - Nutritional supplements are having a healthy effect on Carlyle. The buyout firm may be ready to part with Nature’s Bounty. At the $6 billion price tag reported by Bloomberg, it would deliver a substantial return for what was a pivotal deal in 2010.

At the time, it was Carlyle’s biggest leveraged buyout in years. The firm led by David Rubenstein had been presciently cautious starting in 2007 and NBTY, as the vitamin seller was known then, was its first sizable acquisition since the financial crisis. It also wasn’t obvious how to wring a better return out of the company, given its financial performance. Carlyle said only that it wanted to “drive continued growth.”

That hasn’t really happened. Between 2011 and 2015, the last full year for which figures are available, net sales increased by only 2.5 percent annually on average. The company’s operating margin slipped to less than 7 percent in 2015 from over 10 percent at the time of the buyout. Under Carlyle, Nature’s Bounty has nevertheless refocused on branded products, which are growing faster, and its Holland & Barrett retail operations have been steadily improving.

Carlyle’s timing may prove more valuable than its strategic nous. It paid $3.8 billion for NBTY, or a whopping 47 percent premium to where the shares had been trading. That equated to nearly eight times the company’s EBITDA. Since then, the healthy-living trend has gathered more steam. Soy and almond milk maker WhiteWave, for example, sold itself to Danone last year for 20 times expected EBITDA. The likes of GNC and Vitamin Shoppe are trading at less than six times that adjusted measure of profit, but Nature’s Bounty may be on the verge of fetching closer to 12 times.

The real muscle, though, will be debt. Carlyle initially larded its acquisition with some $2.2 billion of the stuff. Fresh borrowing helped fund dividends totaling almost $1.2 billion, allowing the buyout firm to recoup three-quarters of its investment in three years. Carlyle could pocket another $2.8 billion from a sale, after subtracting some $3.2 billion of existing Nature’s Bounty debt. According to Breakingviews calculations, that would translate into an overall internal rate of return of 20 percent. That’s a nicely pumped result – thanks mainly to leverage supplements.

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