The deal just didn’t seem to make much sense.  That was the conventional wisdom in January 2009, when KPS Capital Partners announced that it would acquire certain assets of luxury home-goods maker Waterford Wedgwood. For starters, the global capital markets were in shambles, with massive solvency questions surrounding the banks upon which private equity firms like KPS relied. For its part, Waterford Wedgwood was arguably in worse shape, hemorrhaging around $100 million annually.  “We’ve been doing professional turnarounds for 25 years, but this was certainly the most shattered business we had ever encountered,” explains Michael Psaros, co-founder and managing partner of KPS. “No one else wanted to buy it so, if we hadn’t stepped in, it was going to be liquidated.”  Six years later, the brave bet has proven the skeptics wrong and paid off handsomely for KPS and its investors. The private equity firm announced that it has agreed to sell the parent company it created, WWRD Holdings, to Finnish consumer products company Fiskars for $437 million. That would seem to work out to more than a 4x return for KPS, based on the original purchase price and $66 million in dividends that KPS received over the years (KPS is not disclosing exact ROI figures, nor do we know what it paid to add Slovenia’s Rogaška in 2013).  “What we knew was that it had four legendary and iconic brands, including selling product in 80 countries,” Psaros says. “Waterford is a household name in the U.S. but, globally, Wedgwood is magic. If we could figure out how to design and make the products profitably, then we could really do something.”  The first step was hiring Pierre de Villemejane as CEO, based on his success helping turn around prior KPS portfolio company Speedline Technologies (acquired by Illinois Tool Works). KPS and de Villemejane would quickly realize that each of WWRD’s four “iconic brands” — Waterford, Wedgwood, Royal Doulton and Royal Albert — were essentially running as independent units, with their own manufacturing strategies, marketing plans, etc. They were quickly consolidated, and more streamlined manufacturing and distribution plans were drawn up. KPS only offered jobs to 3,800 of the 6,600 people who had working at Waterford Wedgwood pre-bankruptcy — something Psaros argues is 3,800 jobs saved rather than 2,800 jobs lost — but managed to continue producing the same amount of product. It also began substantial manufacturing outside of England and Ireland.  “What we discovered was that our Wedgwood products manufactured in Indonesia sold just as well as our Wedgwood products manufactured in the UK,” Psaros says. “The only market where there is still some affinity for UK-specific product is Japan.”  Of equal import, new management worked to modernize the product line — turning WWRD into more of a luxury home-goods company rather than a bridal goods company. This was particularly important in the U.S., where fewer engaged couples are ordering bone china patterns or sets of crystal drinking glasses.  By late last year, KPS felt it had done just about all it could. It would eventually hire Goldman Sachs [feortune-stock symbol=”GS”] to run an auction process, with Psaros saying that Fiskars had pole position from the start — as strategic buyers often due when competing against private equity suitors. It ended up agreeing to pay around a 10x multiple on WWRD’s EBITDA.  “It has been the most dramatic turnaround of our careers,” Psaros says. “To us this wasn’t just a deal or investment… it was something we lived for six years, and now believe it’s going to a very good home.”  Get Term Sheet, our daily newsletter on deals and deal-makers.
KPS Capital Partners bought the worst company at the worst time. Because that's how the best deals are sometimes done.