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Understanding How Private Equity Firms Operate

By Generational Equity

05/29/2018

From time to time we like to highlight deals in the news because they often illustrate how professional buyers operate. A perfect example was the recent announcement that Riverside Company, a leading lower middle market private equity firm, was selling one of its portfolio companies, Tate’s Bake Shop, to Mondelez International for $500 million.

The reason this deal caught my eye was twofold:

  1. How much (and quickly) Tate’s had grown while held by Riverside
  2. The real hands-on help Riverside provided to Tate to make this growth possible

According to the press release:

Riverside invested in the Southampton, New York-based cookie and baked goods specialist in 2014. Tate’s saw sales and earnings increase 4x during the last five years.

Furthermore:

Key initiatives during Riverside’s investment included the significant expansion and improvement of processes around production, deepening of existing customer relationships, expanding distribution, new product launches and boosting the national sales and marketing team, which helped double brand awareness.

Now some might argue that Tate’s might have grown just as quickly without the help of Riverside. However, I highly doubt that when you consider all the significant initiatives that Riverside set in motion while holding Tate:

Riverside’s operational capabilities were key to the success of the investment. The firm helped Tate’s implement new processes, build out the management team, enhance distribution and improve packaging—all while maintaining quality and continuing to grow sales with new and existing customers.

Benefits of a Private Equity Firm

This transaction highlights what we have been saying for years to many of our clients: Partnering with an equity firm that specializes in lower middle market acquisitions can be a real win-win for all parties.

Although details of the original acquisition were not disclosed, based on our experiences, these equity firm transactions are often created via “partial sales”. This is where 51% or more of the target is acquired by the equity firm, existing management is retained, and the new company is further invested in by the equity firm, helping it grow dramatically.

And these firms don’t just focus on financial engineering. They often, as was the case with Tate’s, provide leadership guidance, marketing and sales muscle, and extensive market knowledge to guide the portfolio company to greater heights.

Many of the business owners we work with often have tremendous ideas for growing their companies; they often simply lack capital and people/expertise to implement their ideas. Private equity firms like Riverside have access to both.

Discover Exit Strategy Tips at an Executive Conference

If you are interested in learning more about how professional buyers like Riverside can be great partners for your company, you should attend a Generational Equity educational exit planning conference.

While there, you will not only learn a tremendous amount about the exit process (and how to do it right), you will also be able to meet one on one with our professionals and they can provide ideas that pertain to your specific situation/goals/timing. After this, you will have a clear understanding over whether partnering with a private equity firm is in the best interests of your financial legacy.

To learn more, call us at 972-232-1121 or use the following links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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