Archives for November 2020

Gridiron Acquires GSM Outdoors from Sentinel

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Gridiron Capital has acquired Good Sportsman Marketing Outdoors (GSM), a provider of accessories used in the hunting, sport shooting, and outdoor enthusiast markets, from Sentinel Capital.

GSM is a developer, manufacturer, marketer, and seller of a portfolio of branded hunting and sport shooting products including Stealth Cam (game scouting cameras); Cyclops (specialty outdoor lighting); Walker’s (hearing protection and enhancement devices); Western Rivers (game calls); American Hunter (game feeders); HME (hunting knives and tools); and SME (targets and related accessories). Other company-owned brands include Muddy Outdoors, Birchwood Casey, Big Game, and Hawk.

GSM’s products are sold through online retailers, sporting goods stores, mass merchants, outdoorsman retailers, farm and fleet stores, and dealers/distributors across the US and Canada. GSM, led by CEO Eddie Castro, was founded in 1999 and is headquartered in Irving, Texas.

“We are pleased to partner with Gridiron as we execute the next phase of our in it to win it strategy together,” said Mr. Castro. “We are passionate about our brands, just like the customers and outdoor enthusiasts we serve.  We plan to leverage Gridiron’s extensive experience investing in specialty consumer businesses and M&A to continue our strong growth trajectory.  We cannot be more excited about this partnership and the alignment of our winning cultures.”

“GSM is a branded outdoor enthusiast company and management team that we have long admired for their winning culture and proven track record of organic and acquisition led growth,” said Kevin Jackson, a managing partner at Gridiron. “Eddie and the GSM team have developed a scalable platform built on continuous innovation, category-leading brands, and an intense passion for serving their diversified set of customers.”

Sentinel acquired GSM Outdoors from Huron Capital in June 2018. “It has been a privilege to partner with Eddie Castro and the rest of the GSM management team as they solidified GSM as the leader in the outdoor enthusiast industry,” said John Van Sickle, a partner at Sentinel. “In our two and a half years together, GSM executed a well-conceived acquisition strategy that, combined with its product innovation and development capabilities, expanded GSM’s brand offering, grew its market share, and deepened its loyal customer base.”

“GSM Outdoors has become the leading branded outdoor product supplier in the industry through innovation, customer service and support, and strategic acquisitions.  We are looking forward to partnering with Eddie Castro and his management team to continue to build upon this platform of success and support him with Gridiron’s resources in e-commerce, product innovation, M&A, and operations,” added John Warner, a managing director at Gridiron.

Gridiron invests in manufacturing, service, and specialty consumer companies with enterprise values from $75 million to $575 million and EBITDA from $8 million to $50 million. Sectors of interest include branded consumer, business-to-business and business-to-consumer services, and niche industrial. Gridiron is headquartered in New Canaan, Connecticut.

New York City-based Sentinel Capital Partners invests in management buyouts, recapitalizations, corporate divestitures, and going-private transactions of businesses with EBITDAs up to $65 million. Sentinel targets eight industry sectors: aerospace and defense, business services, consumer, distribution, food and restaurants, franchising, healthcare, and industrials.

Robert W. Baird was the financial advisor to GSM.

© 2020 Private Equity Professional | November 18, 2020

Insignia Sells Chip Maker to Utz

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Insignia Capital Group has agreed to sell Truco Enterprises to publicly traded Utz Brands for $480 million. Insignia acquired Truco in June 2014 from Arbor Investments which had purchased the company in 2004.

Truco Enterprises is an asset-light developer and marketer of tortilla chips, salsa, and queso under the On The Border (OTB) brand. Truco’s products are produced through co-manufacturers and are sold nationally through grocery retailers, club stores, and mass merchandisers. The company, led by CEO Shane Chambers, was founded in 1991 by David Silver and Roy Truitt and is headquartered in Dallas.

The purchase price of $480 million is approximately 9.6x Truco’s estimated fiscal 2020 adjusted EBITDA of $50 million. Utz also anticipates future operating synergies of $5 million and approximately $20 million in net present value of future tax deductions. Incorporating these future values into the multiple calculation – $55 million of adjusted EBITDA and a net purchase price of $460 million – yields a net adjusted EBITDA multiple of 8.4x.

During Insignia’s six-year holding period, Truco’s adjusted EBITDA more than tripled. “It has been a true pleasure partnering with the Truco team to generate this exceptional outcome for all of the company’s stakeholders,” said David Lowe, CEO of Insignia Capital. “We believe Utz will be an exceptional steward of the brand as Truco executes on its next phase of growth.”

The buy of Truco provides Utz with a growing brand in the $6.2 billion retail tortilla chip category (On The Border is ranked as the #3 brand) and in the salsa, queso, and dips categories.

“The Truco team is thrilled to be joining the Utz family of brands, and we are thankful to our partners at Insignia Capital for all of their support,” said Mr. Chambers. “On The Border is now one of the fastest-growing Tortilla chip brands and the fastest growing dip brand in the category.”

“This strategic acquisition will make Utz a significant competitor in the tortilla chip sub-category, where On The Border holds the #3 position, and also provides us with a meaningful position in salsa, queso, and dips,” said Dylan Lissette, the CEO of Utz.

Utz Brands (NYSE: UTZ) manufactures branded snacks under the Utz, Zapp’s, Golden Flake, Good Health, Boulder Canyon, Hawaiian, and Tortiyahs! brands. The company’s products are distributed nationally and internationally through the grocery, mass merchant, club, convenience, and drug channels. Utz is headquartered 50 miles north of Baltimore in Hanover, Pennsylvania and operates fourteen facilities in Pennsylvania, Alabama, Arizona, Illinois, Indiana, Louisiana, Washington, and Massachusetts. Utz was founded in 1921 by Bill and Salie Utz and went public in August 2020 through a merger with Collier Creek Holdings, a special purpose acquisition (SPAC) company.

Collier Creek Holdings was formed in October 2018 by Roger Deromedi, the former chairman of Pinnacle Foods and the former CEO of Kraft Foods); and Chinh Chu and Jason Giordano, senior managing directors of CC Capital.

Insignia Capital invests in lower middle-market companies that have from $5 million to $30 million of EBITDA. Sectors of interest include business services, consumer, and healthcare. The firm is headquartered near San Francisco in Walnut Creek, California.

Harris Williams is the advisor to both Truco and Insignia Capital, while Goldman Sachs and Bank of America are advising Utz Brands.

“There is strong consumer demand in the snacking sector and Truco’s market share, performance and brand positioning within its product categories were key drivers of interest in the business,” said Tim Alexander, a managing director at Harris Williams. “Truco has found a fantastic partner in Utz and we look forward to seeing how the brand will evolve under new ownership.”

This transaction is expected to close in December 2020.

© 2020 Private Equity Professional | November 17, 2020

Buttered or Plain? Champlain Acquires Bad Monkey

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Champlain Financial Corporation and a group of co-investors have acquired Bad Monkey, a maker and marketer of popcorn and other confectionery products.

Bad Monkey’s ready-to-eat and microwavable popcorns are sold through major grocery retail chains, convenience stores, and drugstores. The company was founded by brothers Joseph and Fabio Zeppilli (in their youth, their mother nicknamed the energetic brothers as “bad monkeys”).

The Zeppilli brothers will remain co-CEOs of Bad Monkey in partnership with Champlain Financial. “This exciting new partnership will allow Bad Monkey to reach amazing new levels in a very short period,” said the two brothers in a released statement. “Our goal is to be the industry leader in North American popcorn production and distribution, and we are absolutely confident that with the help of Champlain Financial, this is going to happen.”

Post-closing, Champlain Financial will assist the company in advancing product development and widen its distribution network across Canada and in the United States. Andre La Forge, an advisory partner at Champlain Financial and the current chairman of Spencer Support Group, a Montreal-based provider and private label manufacturer of value-based apparel and a portfolio company of Champlain Financial, will join Bad Monkey as a member of the company’s board of directors.

“I’m looking forward to working alongside the management team to help accelerate Bad Monkey’s growth,” said Mr. La Forge. “Bad Monkey’s strong reputation for creative and fun products will continue to fuel its growth throughout Canada and eventually the US.”

Champlain Financial invests in companies with EBITDAs ranging from $3 million to $10 million. Sectors of interest include consumer, retail distribution, healthcare and niche manufacturing. The firm is led by its managing partner Pierre Simard, who founded the firm in 2004, and is headquartered in Montreal.

© 2020 Private Equity Professional | November 17, 2020

Lincoln – Sponsors and Lenders Beating COVID-19

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Lincoln International has released the results of its third-quarter middle-market index (Lincoln MMI) which tracks changes in the enterprise values of US-based privately-held middle-market companies—primarily those owned by private equity firms.

Lincoln’s new report is based on its database of over 2,200 private equity portfolio companies with median EBITDA of approximately $30 million and shows that the impact of COVID-19 on financial performance has been less impactful than expected, with the majority of companies now beating their COVID-19 adjusted year-to-date budgets and seeing their enterprise value multiples hitting historic highs.

When COVID-19 initially struck the market, portfolio companies’ management teams
produced budgets that were extremely cautious, if not draconian.

Lincoln’s analysis shows that most companies’ earnings are rebounding with financial performance recovering since the initial shockwaves of the global pandemic were felt. In the second quarter, the average 2020 estimated pre-COVID to post-COVID EBITDA budget decline was 23.4%. In Q3, this performance metric has improved to an average decline of 13.1%. Those businesses that managed expectations with conservative post-COVID budgets are now revising their budgets upward.

For transactions that closed during the pandemic, which tended to be for low-COVID-impacted businesses, multiples were strong. The average enterprise valuation multiple across all of Lincoln’s valuations exceeded pre-pandemic levels at 10.4x LTM EBITDA, a record high level. Also, EBITDA multiples increased approximately 10% from the prior quarter, the largest single-quarter increase since Lincoln began tracking the statistic over six years ago.

“When COVID-19 initially struck the market, portfolio companies’ management teams produced budgets that were extremely cautious, if not draconian,” said Ron Kahn, a managing director and co-head of Lincoln’s valuations and opinions group. “But by and large, month by month, portfolio companies have shown signs of a rebound—exceeding their budgets and adapting to what were once viewed as insurmountable circumstances. And much of the success boils down to the immense support of lenders and sponsors across their portfolio companies, paving the way for management teams to adapt to the pandemic conditions.”

Enterprise Values Recovering
As evidence of the swift recovery, middle-market company enterprise values rose 4.4% in the third quarter, bringing this measure in line with year-end 2019 levels.

Continuing the trend seen in Q2, the middle market recovery has not matched that seen in the S&P 500. However, the S&P 500 rally remains largely driven by the five largest constituents: Apple, Microsoft, Amazon, Google, and Facebook, which comprise more than 23% of the S&P 500. Excluding these five, which are generally not comparable to middle-market businesses, both the S&P 500 and Lincoln MMI are flat year-to-date, aligning with their respective December 2019 values.

The ingenuity and creativity by management teams, coupled with private equity firms
and lenders working collaboratively, overall performance through the pandemic is far better than most could have imagined.

Sub-Industry Impact
The initial differences in COVID-19 impact across industries have been well-documented—with companies in hospitality, entertainment and travel struggling, and in many cases, expecting negative EBITDA for FY2020. Meanwhile, businesses in sectors from ecommerce to healthcare and technology fared well with earnings levels above prior year-to-date results for both the June year-to-date and July year-to-date reporting periods.

“While the bulk of businesses are recovering from the shock of shutdowns early in the pandemic, we see that the pandemic has delineated a stark bifurcation between the winners and losers in this unprecedented environment,” said Professor Steve Kaplan, the Neubauer Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago. “COVID-19 has magnified the discrepancies in industry performance. It’s a tale of two cities: the bad companies are falling further, the good have become shooting stars.” Professor Kaplan assists and advises Lincoln on the Lincoln MMI.

Lincoln further reports that with the potential of a second wave looming large and further government stimulus uncertain, portfolio company performance has become increasingly nuanced—hinging not only on COVID-19 impact and a company’s access to liquidity but also the ability of management teams to pivot their business strategies.

“Consider the profile of winners during COVID-19; it’s the clothing store that started making masks, the skincare product maker that began producing hand sanitizer, and the hundreds of businesses that shifted to facilitate operations,” added Mr. Kahn.

It’s as if the impact of COVID-19 on portfolio companies’ financial health has been
downgraded from a hurricane to a tropical storm.

The ingenuity and creativity by management teams, coupled with private equity firms and lenders working collaboratively, overall performance through the pandemic is far better than most could have imagined. In fact, leverage covenant breaches have declined quarter over quarter with only approximately 13% of portfolio companies breaching their total leverage covenant, and this is turn has led to fewer amendments.

“It’s as if the impact of COVID-19 on portfolio companies’ financial health has been downgraded from a hurricane to a tropical storm. It remains to be seen what may happen as a whirlwind of uncertainties—from the outcome of the election to a potential second wave and the timeline of a widely-distributed vaccine—impact companies in the months ahead,” concluded Mr. Kahn.

The Lincoln MMI measures the variation in middle-market companies’ enterprise values by analyzing the aggregate change in company earnings as well as the prevailing market multiples for over 500 middle-market companies each generating less than $100 million in annual earnings. The index is calculated using anonymized data on an aggregated basis by Lincoln’s valuations and opinions group.

Chicago-headquartered Lincoln International specializes in merger and acquisition advisory services, debt advisory services, private capital raising and restructuring advice on mid-market transactions. The firm also provides fairness opinions, valuations, and joint venture and partnering advisory services on a wide range of transaction sizes.

© 2020 Private Equity Professional | November 17, 2020

HKW Adds Tech-Focused VP

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HKW has hired Rick Ammar as a vice president to assist the firm with its expanding technology efforts. Mr. Ammar is based in HKW’s New York office.

Mr. Ammar’s responsibilities at HKW include sourcing new investments, evaluating new investment opportunities, performing underwriting and due diligence, and executing platform and add-on transactions.

“Rick’s track record of investing in high-growth technology and technology-enabled businesses will make for a seamless transition to HKW and our growing technology mandate,” said Jeff Bistrong, a partner at HKW. “His industry relationships, along with his insights into the technology and the current deal environment, immediately provides HKW with an incredibly well-rounded perspective.” Mr. Bistrong joined HKW in May 2020 after 17 years at Harris Williams where he founded and led the firm’s technology, media and telecom group.

For the five years prior to joining HKW, Mr. Ammar was with Macquarie Group in its private capital investments group. Earlier in his career he was with a high net worth family office, and active with technology-related special situations at both Perry Capital and Goldman Sachs. Mr. Ammar has his undergraduate degree in economics from Wharton.

“Rick’s experience investing across the capital structure – control buyouts, minority growth equity, structured capital – will allow him to hit the ground running and immediately serve as a valuable resource for our team,” added Daniel Kim, a partner at HKW. “We believe the current deal environment requires a thoughtful and collaborative approach, and we’re confident Rick will help HKW take advantage of today’s opportunities.”

HKW (formerly Hammond, Kennedy, Whitney & Company) invests in companies in the business services and health & wellness sectors that have EBITDAs between $5 million and $30 million. In the software and technology sector, the firm invests both control and minority investments in companies that have more than $10 million of annual revenue. In October 2019, the firm announced a final above-target close of HKW Capital Partners V LP with total commitments of $365 million.

Since 1982, HKW has acquired 63 North America-based lower middle-market platform companies and closed 69 add-on acquisitions. The firm was founded in 1903 and is headquartered in Indianapolis with an additional office in New York City.

© 2020 Private Equity Professional | November 17, 2020

CIVC Proves There’s Life After Fifty

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CIVC Partners has closed its sixth fund, CIVC Partners Fund VI LP, with $525 million of limited partner capital commitments. The new fund had an original target of $450 million and also closed above its original hard cap.

Fund VI was backed by both existing and new investors, including insurance companies, fund of funds, pension programs, foundations and endowments, family offices, a sovereign wealth fund, and financial institutions located across the United States and Europe.

CIVC was founded in 1970 as the Continental Illinois Venture Corporation, a subsidiary of Continental Illinois National Bank. When Continental Illinois was acquired in 1994 by Bank of America, the CIVC team formed a semi-independent private equity firm, CIVC Partners, with backing from Bank of America. Today, CIVC is led by partners John Compall, Chris Geneser, Marc McManus, Chris Perry, Doug Potters, Scott Schwartz, and JD Wright.

“We could not have asked for a better way to finish our 50th year in existence than with this successful raise of Fund VI during such challenging times,” said Mr. Perry. “We are thankful to our existing limited partners who supported a new commitment to Fund VI and all our new investors who valued our strategy and process for creating strong returns.”

“Being able to have a one and only close fundraise demonstrates a strong endorsement of our team, sourcing strategy, value creation approach and performance,” added Mr. Compall. “We look forward to a long relationship with all of our limited partners.”

M2O Private Fund Advisors was CIVC’s placement agent for this fundraise and Kirkland & Ellis provided legal services. “The M2O team did an outstanding job getting us in front of many high-quality investors prior to COVID-19 events,” said Mr. McManus.

“M20 kept everyone focused during the transition to virtual meetings, prepared investors for a third-quarter launch, and did an outstanding job bringing everything to completion in today’s virtual environment,” added Mr. Geneser.

Chicago-headquartered CIVC invests from $20 million to $100 million in US or Canadian-based service companies that have EBITDA from $5 million to $20 million. Since 1989, the firm has invested over $1.8 billion in 68 platform companies and over 100 add-on acquisitions.

CIVC’s closing of Fund VI follows its earlier fund, CIVC Partners Fund V LP, which closed in March 2017 with $400 million of total commitments.

© 2020 Private Equity Professional | November 12, 2020