Private equity firm Carlyle Group to buy vitamin maker NBTY for $3.8B in cash

Private equity firm acquiring vitamin maker NBTY

NEW YORK — The Carlyle Group has agreed to buy vitamin maker NBTY Inc. for $3.8 billion in cash in one of the largest private equity deals so far this year.

NBTY makes nutritional supplements and vitamins under the brands Nature’s Bounty, Vitamin World and others. Its board has approved the deal.

Carlyle, whose two largest partners are a major California retirement system and an investment company from Abu Dhabi, plans to pay $55 for each NBTY share.

That’s 47 percent above the stock’s closing price on Wednesday. The shares rose $16.27, or 43 percent, to close at $53.74 on Thursday.

Carlyle invests in a wide range of industries, with about 8 percent of its holdings in consumer and retail companies. Its holdings include U.K.-based pharmacy Alliance Boots plc, doughnut maker Dunkin’ Brands Inc. and casino company Harrah’s Entertainment Inc.

The company is moving into a rapidly growing industry. Market research firm Mintel estimates U.S. vitamin and minerals sales in 2009 were $11.2 billion, a 6.2 percent increase from 2008. Growth is expected to continue in coming years as the U.S. population ages and older Americans put more focus on their health.

The private equity firm was attracted by NBTY’s established brands, long-standing customer relationships and a broad base of distribution, said Sandra Horbach, a Carlyle managing director and head of its consumer and retail team.

“We will leverage Carlyle’s global resources and consumer sector knowledge to further drive the company’s global growth,” said NBTY chairman and CEO Scott Rudolph.

In the fiscal second quarter, NBTY’s net income doubled but fell short of expectations.

Its revenue rose 18 percent to $705.1 million. The company has a market capitalization — the total dollar market value of all of a company’s shares — of about $2.38 billion. It had about $375.8 million in long term debt as of March 31, according to a filing with the Securities and Exchange Commission.

Credit ratings agency Moody’s put NBTY on review for a possible downgrade following the acquisition announcement, saying it was highly likely the deal would be funded by debt.

Private-equity deals were scarce during the recession but have increased in recent months, as economic conditions and credit markets improve.

Late last year, health care data company IMS Health Inc. agreed to be bought by investment funds TPG Capital and CPP Investment Board for $4 billion. In May, Interactive Data Corp. agreed to a $3.4 billion takeover by Silver Lake and Warburg Pincus.

NBTY said it is permitted to solicit other proposals for about a month. But the deal is expected to close by the end of the year.

Citi Investment Research analyst Gregory Badishkanian wrote in a client note that the deal makes sense for shareholders because the offer is so high above where shares were trading. He said NBTY faces higher competition and a weak economic backdrop in the second half of the year. He raised his target price by $13 to $55.

The Carlyle Group, founded in 1987 and based in Washington D.C., has more than $90.5 billion under management spread across 67 funds.

Carlyle is a private partnership. CalPERS, the California Public Employees Retirement Systems, owns about 5 percent of the firm and Mubadala Development Company, a strategic investment and development company headquartered in Abu Dhabi, owns 7.5 percent.

About 37 percent of its investors are public pensions and agencies, which represent state and city employees and workers at large corporations, and 33 percent are financial institutions.

The Carlyle Group’s founders include William E. Conway Jr., a former MCI executive; David M. Rubenstein, a lawyer and former deputy assistant to President Jimmy Carter for domestic policy; and Daniel A. D’Aniello, a former Marriott International executive.