Turnaround Awards for Website 2020

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FEATURING

AS SEEN IN March 18, 2019

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April 22, 2013 | BuYoutS

At a time when the global brewing indus-try was undergoing rapid consolidation andinternationalization, KPS Capital PartnersLP collected a series of neglected and cast-off beer brands, fashioning them into theNo. 3 U.S. brewer.

Over the course of its four-year owner-ship, the New York buyout firm earned an8.9x return multiple and a 93 percent IRRon its investment in North AmericanBreweries Inc. by the time of the company’ssale to a foreign strategic buyer, CerveceriaCosta Rica SA, which was seeking to expandin the United States.

“We did not just buy a business and leverit up. We created a company,” said RaquelPalmer , a partner of KPS Capital Partnersand a member of its investment committeewho headed the North American Breweriestransaction. The firm, working with localunion and political leaders, also nearly dou-bled employment at the portfolio compa-ny’s flagship operation in Rochester, N.Y., tomore than 500, while enhancing the down-town facility with a “brew house” to providea destination for visitors.

As a result, North American Brewerieswon for KPS Capital the Buyouts 2013Turnaround Of The Year award. The firmalso received overall Deal Of The Year byvote of the magazine’s editors. Notably, itwas the second year in a row for KPS Capitalto sweep that particular doubleheader; thefirm won the same pair of awards in 2012for the company’s stewardship of AttendsHealthcare Inc., a maker of products foradult incontinence.

In the case of North American Breweries,KPS Capital was able to ride the wave of con-solidation that was sweeping the brewingindustry in 2008. The firm became aware ofthe upstate High Falls Brewery through acontact, and was able to buy the companythrough a complex, out-of-court recapital-ization that called for concessions fromequity and debt holders as well as the localgovernment and union workers.

The firm acquired a couple of well-regarded regional beer brands—Geneseeand Dundee—along with a 100-year-oldbrewery operating at half capacity and sales

in double-digit decline, Palmer said. “Theequipment was not well maintained. Themanagement team did not have the skillsetto turn the business around. They alsodidn’t have the capital.”

What High Falls Brewery did have—thefirm soon changed the company name backto Genesee Brewing Company—was anationwide distribution network throughwhich it distributed flavored malt beveragesfor Pernod Ricard USA LLC under theSeagram’s Escapes and Smooth brands. KPSCapital negotiated a separate deal withPernod Ricard to take over those brands inthe United States. Both deals closed inFebruary 2009.

While this activity was taking place inupstate New York, in Washington, D.C.,antitrust officials were negotiating theterms of the mega-deal that would result inthe formation of Anheuser-Busch InBev.One term was the divestiture of theCanadian brand Labatt. KPS Capital addedthe high-performing import to its burgeon-ing beer portfolio in March 2009.

upgrading Production The firm installed new management,

beginning with Rich Lozyniak , a veteranKPS Capital operator. Lozyniak was not abeer guy—in his previous stint with KPSCapital he had run a company makingindustrial compressors—but he was a team-builder who could work with the union anddevelop the company’s potential. “We relyheavily on our managers to execute ourplans, and to take them beyond our originalinvestment thesis,” Palmer said.

An early priority operationally was toupgrade the brewery’s production lines,Palmer said. “The first thing we did was toinvest behind a 24-ounce canning line,” shesaid. “It was one of the brewers on the shopfloor who said to us as part of our due dili-gence, ‘What’s really missing here is that wedon’t sell a 24-ounce can. We need that pack-aging capability.’ That’s where most peoplein America get their beer, in a conveniencestore, and that is the No. 1 package, the 24-ounce can. If you can’t offer that conveniencestore a 24-ounce can, then they’re not inter-

ested in the rest of your products.”The strategy worked. Through

improved marketing and upgraded produc-tion, the Genesee brand grew at a 20 per-cent compound annual growth rate duringKPS Capital’s ownership, and the Seagramsbrand had a 40 percent growth rate,Palmer said, at a time when industrygrowth was essentially flat. Growth, inturn, enabled the firm to recapitalize thecompany, repaying the investors plus aprofit in less than two years.

Along the way, KPS Capital addedIndependent Brewers United to its portfo-lio in August 2010, expanding its highermargin craft beer business with the brandsMagic Hat in Vermont and Pyramid on theWest Coast. But with no further transfor-mative acquisitions on the horizon, KPSCapital hired UBS last year to conduct anauction. The ultimate buyer, CerveceriaCosta Rica SA, was a Costa Rican brewerthat owned a brand called Imperial, forwhich High Falls had been exclusive dis-tributor in the United States.

“They had seen firsthand our transfor-mation of the management team and thebusiness itself, so they had grown upthrough the business with us,” Palmer said.“They had the best kind of due diligence, tosee the company from the start through theprocess by UBS.” –S.B.

www.buyoutsnews.com

snapshot:

Firm: KPS Capital Partners LP Target: North American Breweries Inc. Return Multiple: 8.9x Acquiror: Cerveceria Costa Rica SA Sale Price: $388 million Advisor: UBS Securities LLC

AWARDS2013

� Seeing value where others didn’t � Putting together an operationally focused turn-

around plan � Working with multiples stakeholders to drive

value� Delivering a superior return in a short time

Why the fIrM Won

the Building of a Brewing conglomerate

turnaround of the year and deal of the year

KPS capital Partners LP

(#76753) Reprinted with permission from the April 22, 2013 issue of Thomson Reuters Buyouts. Copyright 2013 Thomson Reuters.To subscribe to Thomson Reuters Buyouts, contact Greg Winterton at [email protected].

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BuYoutS | April 23, 2012 www.buyoutsnews.com

TuRNaROuND OF THE YEaR aND DEaL OF THE YEaRKPS capital Partners LP

KPS Capital Partners LP’s turnaround ofadult incontinence product maker AttendsHealthcare offers a prime example of whatdevoted attention from experiencedinvestors can bring to a neglected company.

With its experience in the nitty-gritty ofturning around manufacturing companies,KPS Capital was able to transform a compa-ny that was facing liquidation into a prof-itable, growing company sought by aFortune 500 company, while generating 15xits invested capital in the process.

“This is textbook, this is what we do,” Raquel Palmer , a partner with KPS Capital,told Buyouts .

Attends Healthcare makes adult inconti-nence products under the Attends brandname. It employed around 400 in two facili-ties, in Greenville, N.C., and La Verne, Calif.,before KPS Capital’s involvement.

For more than 10 years, the business thatwould become Attends Healthcare lan-guished under distant management. Procter& Gamble housed it in its personal careproducts group for years until 1999, whenthe mammoth consumer products companysold it to a company called PaperPak.PaperPak, in turn, was bought in 2002 byBritish private equity firm 3i Group plc for$94.2 million, according to Capital IQ.

Attends Healthcare had U.S. andEuropean operations at the time, and eventhen the U.S. business was struggling whileits European business was doing better,according to press reports. PaperPak wouldgo on to sell the U.S. business to KPS Capitalin January 2007 for an undisclosed amount,and 3i would sell the European businessseven months later to another private equi-ty firm, Rutland Partners , for €93.5 million($122.3 million at today’s exchange rate),according to Capital IQ.

The company was on its proverbialdeathbed—generating negative $3 millionin EBITDA—when Kibel Green, a Californiaconsulting firm specializing in turnaroundsituations, reached out to KPS Capital in late2006.

“If we’d made it to the fall of ’08 without[KPS Capital], we’d have gone under,” Michael Fagan , the company’s CEO underKPS Capital who had been with AttendsHealthcare, off and on, since the late 1980s,told Buyouts .

KPS Capital was intrigued by several

favorable baseline factors that suggested thecompany’s potential. With hordes of babyboomers approaching old age, there wouldbe no shortage of potential customers. Andin its due diligence, the firm found thatdespite the brand’s struggles, it had a loyalcustomer base. Further, Attends Healthcaremakes products that are essential for its cus-tomers, so it wasn’t like something thatwould go out of style—a factor that wouldprove critical during the economic down-turn, when consumers curtailed spendingon less necessary goods.

But KPS Capital executives reallywarmed to Attends Healthcare when theyvisited its manufacturing facility inGreenville, N.C. The company’s agingmanufacturing equipment, which trans-formed pulp and other raw materials intothe material used in Attends products,needed serious upgrading. And Fagan hadknown for years that the company couldsave money on freight costs with what’scalled “compression packaging” equip-ment, which would allow the company toput more boxes of its products on the pal-lets that are sent by truck to the compa-ny’s distributors.

the Journey Begins KPS Capital bought the company from

PaperPak in January 2007, investing about$20 million of equity within 60 days of look-ing at the company and without a financingcontingency. It named the new companyAttends Healthcare Inc., after the Attendsbrand. Shortly after the deal, the companyobtained a $47.5 million asset-based financ-ing package.

At the time, Attends Healthcare was gen-erating about $150 million in revenue, andnegative $3 million of EBITDA; it employedapproximately 400 people.

KPS Capital and the management atAttends Healthcare, led by Fagan, quicklyset about transforming virtually all aspectsof the company’s business. The companydispatched the California facility because itwas redundant and unprofitable, saving thecompany $5 million.

The company installed three new manu-facturing lines in the Greenville factory,financed with $33 million from its internalcash flow. Each manufacturing line tookabout 12 to 18 months to install. This

enabled the company to expand its productline from a basic brief to include a pull-onincontinence product, which was suitablefor more mobile customers, and a “breath-able” brief. The new equipment allowed thecompany to make its products 4x as fast asthe old equipment, Fagan said.

KPS Capital rooted out savings in the com-pany’s distribution and freight costs. On thedistribution side, it rationalized its productofferings. Attends Healthcare also revisedrelationships with smaller, less profitable dis-tributors, pushing them to buy the productinstead from other, larger distributors.

The firm returned almost all of its invest-ed capital after 10 months with a dividendtaken from the company’s cash flow. Itwould eventually take three more divi-dends, two of which were for $35 millionand $60 million, respectively, from tworecapitalizations. In total, the companyreturned $120 million in cash distributionsbefore KPS Capital exited.

In August 2011, the firm found what itdeemed a worthy buyer, at a worthy price.Domtar Corp., a $4 billion manufacturerand distributer of paper products based inMontreal, bought the company for $315million. The sale netted KPS Capital a 15xcash-on-cash return, and a 120 percentinternal rate of return.

By then, Attends Healthcare was postingannual sales of $200 million and an estimat-ed run-rate EBITDA of $39 million, accord-ing to a Domtar press release. –B.V.

KPS capital revives attends Healthcare SNaPSHOT:

Firm: KPS Capital Partners LP Target: Attends Healthcare Inc. Hold Period: 4 years Buyer: Domtar Corp. Legal Adviser: Paul Weiss Rifkind Wharton &Garrison LLP; Buyer: K&L Gates LLP Price: $315 million

� Successful turnaround of corporate orphan. � The firm’s deep research found a base of loyal

Attends customers and favorable demographics. � Company completely upgraded its manufacturing

operations.� Improved company’s financial performance. � Returned 15x its money.

WHY THE FIRM WON

(#72564) Reprinted with permission from the April 23, 2012 issue of Thomson Reuters Buyouts. Copyright 2012 Thomson Reuters.

To subscribe to Thomson Reuters Buyouts contact Greg Winterton at [email protected].

For more information about reprints from Thomson Reuters Buyouts please contact PARS International Corp. at 212-221-9595 x426.

PRINTED COPY FOR PERSONAL READING ONLY. NOT FOR DISTRIBUTION.