Private Equity Decides to Exit

TypeStrategic Assessment
Quick Facts$200M food company (“FoodCo”) with 2 divisions: a manufacturer of deli meats and a leading regional food service distribution operation. Majority-owned by a private equity group.
ChallengesFoodCo was a multi-generation family business that partnered with a private equity group to provide partial liquidity to family members and gain access to growth capital. Over the course of five years, a series of successful bolt-on acquisitions and innovative product introductions had dramatically increased the size, profitability, and value of the company. Despite FoodCo’s success, the company was at a crossroads:
  • the deli meats business needed to expand geographically
  • competitors had invaded the company’s innovative product niches
  • the linkages between the food service business unit and the meats business unit had become weaker over the years; there were now few synergies between the two companies
  • the private equity group had been in the deal for 5 years and was considering selling
  • some original family members wanted to cash out; non-family management wanted to buy-in but had limited personal funds to accomplish this
ApproachThe outside buyout group and the Board of Directors wanted an independent, outside advisor to help FoodCo identify its strategic challenges and lay out a variety of corporate development options for shareholder liquidity. Since the lead investor had not made a decision to exit, McHugh & Company worked closely with management to craft a strategic plan for each business unit; this analysis enabled the Board to evaluate the needs of the business within the context of the liquidity needs of the family and the investors.
ResolutionNear the conclusion of the project, the Board was approached by another private equity group who made a preemptive bid to acquire the company. This was a win/win situation for all parties:
  • the next generation of senior management was able to obtain equity in NEWCO
  • the remaining family members were bought out
  • the original buyout group was able to sell at a strong multiple without going through a long auction process
Links to the other strategic assessment cases:
  1. Private Equity Decides to Hold and Restructure
  2. Family Commits to Change Program

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