PE Deals of the Year
PAI Partners: Yoplait   Onex: Emergency Medical Services   Apollo: Hughes Communications   Silver Lake: Skype   El Paso   Castle-Harlan: Perkins & Marie Callender's   Midocean: Sbarro   Sun Capital: Friendly Ice Cream   Blackstone et al.: Travelport   Bain: Keystone Automotive  The year in PE bankruptcies  Other notable PE exits

Connections Education LLC

Online schooling was just beginning to gain acceptance in the public sector when Apollo Global Management LLC took a liking to Connections Education LLC as a growth-stage portfolio asset. Apollo bought Connections in 2003, along with K-12 tutoring centers and eSylvan, from Sylvan Learning Systems Inc., a publicly traded incubation in which Apollo held a stake. It paid less than $300 million, swapping its original equity.

The mature K-12 tutoring centers, renamed Educate Inc., went public in 2004. That year Apollo carved out Connections, a virtual education company based in Baltimore, and later brought in minority investor Sterling Partners, whose Baltimore presence provided local support. Connections runs full-time, tuition-free virtual schools, generating revenue from contracts with public-school systems and charter schools across the country.

The business capitalized on widespread dissatisfaction with public-school systems that spurred a surge in home schooling and charter school movements. Connections and market leader K12 Inc. offered parents and students an alternative to classroom education where individual learners in certain circumstances can use a computer-based curriculum supervised at home by a parent or instructor.

The company, co-founded by president and CEO Barbara Dreyer, was tightly managed. While there were many challenges, managers kept their eyes trained on costs as the business expanded, avoiding loss-leader states, where reimbursements were lower, and offshore markets. By 2011 Connections had become the second-largest provider, booking $200 million of revenue with plenty of room to grow. Pearson plc took note, paying $400 million for the business. That enabled Apollo, which invested about $14 million for a 70% stake, to post a return of about 20 times cost. -- Vyvyan Tenorio

Norcast Wear Solutions

Mayflies live longer than private equity firm Castle Harlan Inc.'s investment in Norcast Wear Solutions. On July 6, the New York investor staged perhaps the fastest flip in buyout industry history when it bought the Canadian maker of mining machinery components for $190 million, then a few hours later unloaded it to Australian industrial concern Bradken Ltd., a former Castle Harlan portfolio company, for $218 million.

The maneuver infuriated the original seller, Swiss PE firm Pala Investments AG, which hired law firm Chadbourne & Parke LLP to explore legal remedies. At last report, a U.S. district court denied a motion by Castle Harlan to reverse a ruling that it provide documents pertaining to the deal. Castle Harlan's only public statement was vague, saying the firm had a long history of teaming up with corporations, including Bradken, on deals. --David Carey

Nycomed International Management GmbH

The €9.6 billion ($12.8 billion) sale of Swiss-based drugmaker Nycomed International Management GmbH to Takeda Pharmaceutical Co. Ltd. was a private equity exit packed with superlatives. It was the biggest acquisition by a Japanese drug company and the second-largest foreign acquisition for any Japanese buyer; the largest PE trade sale in Europe and the third largest ever globally; and last, but certainly not least, it was among the largest capital gains in recent years on a PE investment.

Even so, Kristoffer Melinder of Swedish buyout firm Nordic Capital, who played a key role in the sale by a consortium that also included Credit Suisse Group private equity arm DLJ Merchant Banking Partners, New York's Avista Capital Partners and London secondaries firm Coller International Partners, is surprisingly modest in his assessment. "It was a very good investment for us," he says, "but it was not the best transaction we've done. It was the biggest capital gain. But in terms of money multiple and IRR, it was a good deal, definitely, but it wasn't the best one."

Melinder refuses to quantify Nordic's exact returns on Nycomed and won't confirm reports that it invested €320 million of equity when it bought a 51% stake in the company in 2005, together with co-investors from among its limited partners, in a deal valuing the company at €1.8 billion.

Nor does he discuss The Deal magazine's estimate that Nordic collected upward of €2.4 billion at exit last September, out of about €6 billion the owners stood to garner from the sale, after Nycomed's €3.6 billion of debt was netted out. (At exit, Nordic owned about 41%, while together with its co-investors, the total was closer to 60%. DLJ, Avista and Coller owned the rest.)

But Melinder points out that Nordic and its co-investors put in undisclosed sums of additional equity and boosted their stakes during the course of the following seven years, to support some of Nycomed's acquisitions. The biggest of these was the €4.5 billion acquisition of the pharmaceutical business of German chemicals group Altana AG in 2007.

The sponsors didn't part with all of Nycomed. Kept out of last year's sale was Melville, N.Y.-based dermatology specialist Fougera Pharmaceuticals Inc., which was considered noncore to Nycomed. Melinder says Nordic, DLJ and Avista will continue to develop and invest in Fougera, which has positions in dermatology and specialty generics. When the time does come to sell, it will contribute further to overall returns.

The 2005 buyout was Nordic's second go-around with Nycomed. It first bought the company from Britain's Amersham plc back in 1999 and unloaded it three years later to DLJ, Blackstone Group LP and NIB Capital Private Equity NV. Melinder says now that Nordic earned more than a fourfold profit in that sale.

He says the move to buy back a company they had exited at such a good price did provoke controversy and some adverse commentary at the time. But last year's exit was evidence that the investment had ultimately been worth the gamble. -- Jonathan Braude

Global Tel*Link Corp.

Veritas Capital notched big profits over time buying and selling defense contractors such as Vertex Aerospace LLC, L-3 Communications Holdings Inc. and DynCorp International Inc. In 2009 it bought a different sort of taxpayer-supported business, which it sold last year for more than a 325% gain.

The company, Global Tel*Link Corp. of Mobile, Ala., provides telephone services to federal and state prisons. A New York buyout shop led by financier Robert McKeon, Veritas sank $115 million of equity into a $345 million secondary buyout from Los Angeles private equity firm Gores Equity LLC, a knowledgeable source says. One attraction was Global Tel*Link's steadily expanding cash flows -- powered by relentless growth in America's prison population. Reckoning it could bolster Ebitda through acquisitions, Veritas went on to engineer two major add-ons, of Digital Solutions Inc. and Public Communications Services Inc., both in 2010.

Thus fortified, Global Tel*Link traded hands in another secondary buyout, to American Securities LLC, in December. Veritas, which declined to comment for this story, pocketed more than $490 million in the $1 billion sale.

A key to the deal's outcome, the source adds, was Global Tel*Link's promoting the use of prepaid phone cards. Inmates' calls are all collect, and default rates on those calls ran as high as 25% when Veritas bought the company. "Prepaid phone cards really brought down the bad-debt expense," the source says. --D.C.

Arcos Dorados Holdings Inc.

The private equity consortium backing Buenos Aires-based Arcos Dorados Holdings Inc., the largest McDonald's Corp. franchisee in the world, rang up an exceptional 10.6 times return.

CEO Woods Staton, the Colombian-born Argentine businessman who crafted the original leveraged acquisition through his position as head of McDonald's Latin American division, brought in Capital International of London and Los Angeles as a partner. CI then roped in Rio de Janeiro's Gávea Investimentos and Buenos Aires' DLJ South American Partners LP. Together the investors plowed $377.5 million in 2007, with Staton taking 40%.

Staton tapped into the region's rising consumerism, positioning the burger chain as more of a dining destination than a cheap fast-food option, with buffed-up service and locations. An expansion spree took hold, particularly in Brazil. Adjusted Ebitda went from $299 million on $3 billion of revenue in 2010 to $339.8 million on $3.7 billion of revenue last year.

Last April Arcos made a splashy debut on the New York Stock Exchange, pricing at $17 a share and raising about $1.1 billion. The initial public offering valued Arcos at $3.4 billion, or 9 times equity invested. The sponsors sold a portion of their stakes in the IPO, then cashed out entirely in October, when they sold their remaining 44.5 million Class A shares, or a combined 34.2% interest, in a secondary offering that priced at $22 per share. The group raked in $978 million in gross proceeds, or an average 12.6 times cost.

Staton, who has a 40% economic holding and a 75.9% voting interest, has kept his 2 million Class A shares. His stake was worth $57 million in September, when the stock peaked at $28.36.

The business, which grew 21.2% year over year in 2011, nevertheless had a challenging fourth quarter. Revenue was down in the last quarter from the third quarter, owing to a slight decline in consumption in Brazil, its most important market. Same-store sales were up just about 6% in Brazil, where Arcos operates more than 650 outlets.

As of mid-April, shares were back down near the IPO price, trading at around $18. After the golden market debut, investors have adjusted to less rosy sales growth for the region's emerging markets, as Brazil's economic boom tempers somewhat. --Taina Rosa

Tri-Star Electronics International Inc.

Midmarket private equity firm Brockway Moran & Partners hit a home run last year, scoring an impressive 5 times return on its investment in Tri-Star Electronics International Inc.

An El Segundo, Calif., maker of connectors and custom cable assemblies for in-flight entertainment systems, Tri-Star had a history of PE ownership. It was part of DLJ Merchant Banking Partners-backed DeCrane Aircraft Holdings Inc. in the '90s. It was spun out as a standalone entity, Specialty Avionics Group, and sold to Odyssey Investment Partners LLC in 2003 for $140 million.

In 2007 Tri-Star landed with Boca Raton, Fla.-based Brockway Moran for an undisclosed price, with Odyssey keeping a small stake. Mark J. Silk, a former CEO of another Brockway Moran portfolio company, Integrated Aerospace Inc., from 1999 through 2004, joined Tri-Star at the time of the acquisition. Silk endeavored to step up expansion of the business, which generated $95 million of revenue in 2011.

Under Silk and the PE sponsor, Tri-Star boosted its target market presence and improved profitability, according to Richard Wandoff, the Brockway Moran partner who led the buyout.

Tri-Star caught the eye of diversified manufacturer Carlisle Cos., whose interconnect technologies division added Tri-Star's machining facilities in Riverside, Calif., and Lugano, Switzerland, and other capabilities for $284.4 million late last year. Carlisle's purchase price was about 11 times trailing Ebitda of $26 million and about 3 times revenue, an above-average multiple, according to analysts. -- T.R.

Crisis Prevention Institute Inc.

On the buy side, Brockway Moran saw an attractive asset in Crisis Prevention Institute Inc., as did the midmarket sponsor that owned it. Riverside Co. bought Milwaukee-based CPI, a provider of crisis prevention, nonviolent physical intervention and dementia care training, in September 2006 for an undisclosed price. Founded in 1980, CPI claims to have trained more than 6 million human service professionals globally. The business made two add-ons under Riverside: Milwaukee's Dementia Care Specialists in May 2009 and Positive Options Ltd. of Staffordshire, U.K., a year later. In November the management, led by CEO Tony Jace, switched investment partners. The sale price wasn't revealed, but it gave Riverside a 5 times gross cash-on-cash return and a 36% gross internal rate of return. -- T.R.

Robert McKeon

Veritas Capital founder, chairman and managing partner Robert McKeon, 57, trained his firm's sights on leveraged buyouts of defense contractors in the late 1990s. The move has paid handsome dividends, including a sevenfold gain earned on a buyout of DynCorp International Inc., and a more than fivefold profit in Vertex Aerospace LLC. Before founding Veritas in 1992, McKeon ran Wasserstein Perella Co.'s private equity business for four years, leading the firm's purchase of cosmetics maker Maybelline Inc. He's a member of the Council on Foreign Relations, a think tank, where he has endowed a series of meetings and talks featuring military leaders. -- D.C.