UPDATE 3-THL to sell Michael Foods for $1.7 bln to GS

* Deal to sell to GS Capital valued at $1.7 billion

* THL Partners to retain 20 percent stake

* THL to get return of more than 3 times investment-source
(Updates with details on Michael Foods earnings, financing)

By Megan Davies

NEW YORK, May 21 (BestGrowthStock) – Goldman Sachs Group Inc’s
(GS.N: ) private equity unit is to buy food supplier Michael
Foods from private equity firm Thomas H. Lee Partners (THL.UL: )
in a deal valued at $1.7 billion, Michael Foods said in a press
release on Friday.

Boston-based THL, which invested in the eggs and
refrigerated potatoes supplier in 2003, will retain a 20
percent ownership in the company, Michael Foods said.

The private equity firm bought Michael Foods in October
2003 in a deal that was valued in total at about $1.05
billion.

The sale to GS Capital Partners will see THL make a return
of more than three times its original investment of about $290
million, a source familiar with the matter said on Friday.

Michael Foods specializes in selling egg, potato and dairy
products to retailers.

For the first quarter of 2010, the company reported a rise
in EBITDA — earnings before adjustments such as interest and
tax — to $56.5 million, from $54.7 million the previous year,
which it said was driven by improved performance from its egg
products unit. It said at the time a new potato processing
plant was nearly complete.

Net earnings, however, decreased 16 percent to $17.5
million, partly due to increased interest costs related to a
2009 credit agreement refinancing.

The company had total debt of $556 million at the end of
the first quarter.

DEALFLOW RETURNS

As the financing markets and economy have improved over the
past year, buyout firms have been increasingly able to strike
deals again.

THL Partners was among a consortium that was in recent
talks to buy Fidelity National Information Services Inc (FIS.N: )
for $15 billion. Those talks fell apart over price, but the
buyout firms had managed to get financing to support a deal.

The credit crisis meant private equity firms also had
difficulty selling or floating investments, meaning exiting
some assets took longer than the typical period of 3 to 5 years
that firms generally target.

THL had previously tried to sell Michael Foods in 2007,
sources told Reuters at the time.

THL has investments in companies including coffee and
doughnut chain Dunkin’ Brands, radio and outdoor advertising
firm Clear Channel and payment services firm MoneyGram
International.

GS Capital Partners is currently investing its sixth global
fund, a $20.3 billion fund called GS Capital Partners VI,
according to its website.

The bank’s private equity unit is the biggest in the world,
according to a recent study by Private Equity International
magazine, which focused on the amount each buyout firm raised
over five years. It has investments in companies such as Energy
Future Holdings Inc, the former TXU.

BofA Merrill Lynch (BAC.N: ) advised Michael Foods and THL
while Goldman Sachs advised GS Capital Partners. Those banks
also provided commitments for debt financing for the deal.

For a story on the financing for the deal: [ID:nRLP99972a]

THL and Goldman Sachs declined comment.

Stock Analysis

(Reporting by Megan Davies; Editing by Robert MacMillan, Phil
Berlowitz, Gary Hill)

UPDATE 3-THL to sell Michael Foods for $1.7 bln to GS