How a private equity firm got weight management firm Atkins Nutritional back into fighting shape.

Private equity firms don’t forget when you write negative things about them.

Case in point is North Castle Partners, which in 2007 acquired weight-management company Atkins Nutritional. Here was what I said at the time:

The original buyout of Atkins Nutritionals was one of the worst private equity deals ever transacted. Even worse than Refco. And now it’s back in private equity hands, after having spent several post-bankruptcy years controlled by first-and-second lien holders. Certainly a curious move by new owner North Castle Partners. And brave. And possibly stupid.

On a more positive note, I added that if someone had to buy Atkins, North Castle “may be the best possible” choice.

My concern was that North Castle was tempting fate. Atkins not only had baked a giant donut for prior owner Parthenon Capital, but the failure had nearly destroyed the entire firm. Parthenon had overpaid for Atkins, over-allocated for it within its own portfolio and stolen the “hot” deal from Summit Partners (paying $20 million in restitution). Moreover, it had engaged in a disastrous strategy of focusing Atkins into a food company first and weight management company second.

By the time North Castle got involved, company revenue had fallen from around $700 million at its 2003 peak to barely $100 million.

But it turns out that North Castle really knew what it was doing. The Greenwich-based firm today announced that it has sold Atkins to Roark Capital Group of Atlanta, for a 5x return on its original investment.

“I dusted off your old column this morning,” said North Castle managing director Lou Marinaccio, during a phone call after the deal was announced. “It was a bit more balanced than I had remembered, but it still felt good to read it over again.”

He went on to explain the turnaround, saying that the first step was to return the company to its weight management roots. This meant thinning the product line down to (better-tasting) shakes and bars, relaunching the website and republishing the Atkins book. The next step was to expand by spreading the word about new research that supported the diet’s basic tenants

“Some people think Atkins was a fad or private equity greed or an unsustainable diet program, but a lot of that stuff dates back to 2002 or 2003,” Marinaccio says. “Since then the science has really evolved, with over 50 studies — including ones by Harvard and Stanford, published in peer-reviewed publications like the New England Journal of Medicine — validating the Atkins approach working at least as safely and effectively as any other diet in the country.”

The obvious question, of course, is why North Castle is selling now. After all, isn’t it just handing future profits to another firm (in this case, Atlanta-based Roark)?

Marinaccio answers by saying that while Atkins may have the potential to someday become a billion dollar company, North Castle simply doesn’t have the resources to achieve that sort of growth. The firm is investing out of a $300 million fund, compared to the $1 billion fund at Roark’s disposal.

“We had a lot of options, both strategic and financial, but we chose Roark because they share our vision about taking Atkins to the next level by continuing to improve the diet program and possibly adding back certain products,” Marinaccio says. “Plus, we still have a little bit of economics on the deal.”