Management Buyout Success Story

By Generational Equity


Recently an article in Middle Market Growth magazine caught the attention of Tom Staszak, one of our managing directors. Entitled “CREO Capital Finds Its Mojo with Food Focus – Bet on Underperformer Leads to Budding Portfolio,” the article did a good job of highlighting how finding the right private equity firm (a.k.a. PEG, which is short for private equity group) can be a win-win scenario for the ownership of a privately held company.

But what really was meaningful to him was that one of the acquisitions discussed in the piece was a company that Staszak and Generational Equity represented in the market in 2008!

Before we dive into the details, it will be helpful to many of you if we define a few terms. First, this transaction was a good example of what we call a “management buyout” (MBO), which we define as:

A leveraged buyout where the existing management team is brought in as shareholders.

In most cases, ownership of the company is bought out by the acquiring equity firm and non-owner managers are retained and are given equity in the new company. This enables the PEG to keep talent and provides non-owner managers the incentive to stay because they are now co-owners in the new entity.

In addition, post-acquisition, the equity firm usually provides growth capital and quite often takes an active role with the new entity by providing marketing expertise, financial acumen, and leadership that the old organization did not have access to.

Over time the equity firm will typically “bolt on” or “add on” other synergistic businesses that will be combined to form a much larger, growing entity.

This is exactly the scenario described in the article mentioned in Middle Market Growth. In 2008, Generational Equity – working for the owner of Treasure Valley Foods (TVF) – negotiated a management buyout of TVF.

TVF was founded in 1994 as a producer of french fries. Over time it expanded to a full line of frozen food products and to other related foods. Frozen products included twice-baked potatotes, potato wedges, hash browns, fruits, vegetables, chicken, and juice. A variety of non-frozen foods were produced as well, including animal crackers, popcorn, beef stroganoff, salad dressing, and drink mixes.

At the time of the acquisition, TVF’s was generating around $37 million in revenue. This is what CREO Capital, the acquiring equity firm, said about the transaction in the Idaho Statesman in 2008:

"The acquisition of Treasure Valley is further evidence of our commitment to a proactive strategy of integrating and growing a national network of leading middle market food companies," said Nick Sternberg, a partner at CREO Capital Partners. "Treasure Valley's outstanding cache of products makes it an ideal addition to the venerable brands in CREO Capital Partners' portfolio."

Post-Close Success

Since the deal closed, the new co-owners of TVF and CREO Capital have done a fantastic job of growing the brand and the business. According to Middle Market Growth magazine:

“‘(CREO’s founders) had a passion for food and it was a good fit,’ says Gary Lim, a former Treasure Valley co-owner and president.

Terms of the transaction included keeping Lim on board as CEO. By focusing on marketing and leveraging synergies among the different brands, Treasure Valley has since grown sales to $80 million yearly.”

In addition to helping TVF grow and expand, CREO Capital has also been committed to developing a sizable platform company in the food industry:

“CREO created Flagship Food Group in 2012 to house its growing brand portfolio under one roof, a move that included appointing Lim CEO of Flagship North America.

The new platform also allowed the rollout of another fruitful venture, Flagship Food Logistics, which arranges transport of Flagship’s products along with those of other food companies, including dairy giant Stonyfield Farms. The division offers economies of scale and brings in additional revenue.

Flagship now operates eight proprietary brands with some 400 products … It sells to roughly 100 customers, among them Fortune 500 companies, upscale national retail chains and mass retailers.”

The really interesting news is that the entire entity, Flagship Food Group, is now generating roughly $300 million in revenue – which is really amazing when you consider that CREO Capital’s original purchase of a frozen meatball producer in 2005, Oh Boy!, was actually losing money!

According to Tom Staszak, the Generational Equity managing director that worked on the deal, “The deal we negotiated on the behalf of TVF was truly a win-win scenario. I felt confident at the time that CREO and the new owners of TVF would form a great team, but over the past six years they have surpassed my expectations and have done a great job in creating a brand and a company together.”

CREO Capital Partners, formed in 2005, has “acquired controlling and minority interests in 16 companies, with over a dozen in the broader food, beverage, and consumer sectors.” The firm “focuses on the middle market, where we partner with excellent management teams to build long term, fundamental value for our investors, partners, and employees.”

This was clearly the case with TVF and the related synergistic acquisitions and startups CREO Capital has made since 2008.

Of course not every private equity transaction performs as well as the TVF/CREO Capital combination. And success just doesn’t happen; it takes hard work, teamwork, a willingness to think strategically, and the ability to create and market products in a competitive industry.

The deal teams with Generational Equity work hard for our clients to find synergistic relationships like this. We aren’t always as successful as this, but more often than not, given our team’s experience, skill, and diligence, we are very successful in finding optimal buyers and structuring deals for our clients. Even though not every privately held middle-market company is a logical target for a PEG, having an M&A advisor like Generational Equity evaluating and then marketing your company will give you a better chance of finding the best buyer for your business.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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