Bear Stearns Finds CamelBak Refreshing –

Perhaps the most obvious economic effect of America’s War on Terror has been a dramatic uptick in military and homeland security spending. Not surprisingly, investors are licking their chops at any company that can boast a government contract. But while most of the companies benefiting from Uncle Sam are high-tech, defense-related manufacturers, Bear Stearns Merchant Banking Group found a consumer products company that has changed the way soldiers find refreshment in the field.

In late November, the firm emerged as the winning bidder in a J.P. Morgan Chase-led auction for CamelBak, a company that now supplies American service men and women on the front lines in the Middle East and here at home with “personal hydration systems.” One of every two soldiers in the U.S. military has been issued a CamelBak, and much like brands such as Coca-Cola and Lucky Strike cigarettes did in the Second World War, CamelBak is finding its way around the world and into new demographics.

“At first, I figured the product was only made for things like skiing and mountain-biking,” says Rick Perkal, a senior managing director with Bear Stearns who was involved in the deal. “But I was wrong. There are so many markets out there-so many people that could use, and are starting to use, a CamelBak.”

CamelBak’s auction commanded a high level of interest, which meant Bear Stearns never had exclusivity. But the firm hung around until the end and won with a bid of $210 million, a total that includes $80 million in senior debt, provided by BNP Paribas and Bank of New York, and $40 million in mezzanine debt, provided by American Capital, representing a multiple of 4X EBITDA.

“What we’ve learned in our years in private equity is that it’s better to pay a relatively full price for a company that has all the building blocks for future success, than to buy something that’s in a less exciting position with your typical run-of-the-mill type multiple,” says Perkal’s colleague, Senior Managing Director Bodil Arlander.

Looking Bak’

Arlander remembers the day last July when Perkal approached her about the opportunity.

“Have you ever heard of a CamelBak?” he asked.

“I just looked at him, stunned that he didn’t know what it was,” says Arlander, who could hardly contain her excitement about the news. As a triathlete, Arlander is no stranger to the CamelBak, the perfect accessory for active people who need to drink water on the go. “It’s the Kleenex of the hydration category,” she says.

While several imitations have sprung up in this space, CamelBak pioneered the personal hydration system almost 10 years ago to the delight of athletes and outdoor enthusiasts. Now, its name is widely synonymous with the product as the company has achieved some mainstream success and brand recognition, and its new owners are convinced that its popularity will only increase.

CamelBaks consist of a small, tight-fitting backpack that holds an insulated water bladder with a long, drinking tube that can extend over the owner’s shoulder for hands-free water consumption. Each tube has a shutoff valve on the end, so a drinker needs only to bite down lightly on the valve to enjoy a satisfying stream of water. The insulated bladder keeps drinking water cool in the summer and prevents freezing in the winter.

Available in a variety of shapes and sizes to accommodate different activities, CamelBaks have become a staple in sports stores around the country and a popular accessory for all kinds of active people, such as runners, bikers, skiers, hikers, skaters, fishers and climbers. While it has long been associated with organic, yuppy types, its popularity in the military is helping the company market aggressively toward groups like hunters and motorcyclists.

Perkal and Arlander were intrigued by the opportunity but not totally convinced that it would make a good buyout until they attended the management’s first national presentation in August in Sonoma, Calif.

“We were wildly impressed with the management from the beginning,” says Perkal. “It was clear that they put a lot of effort into R&D and they continue to innovate and bring in new technological advances that have allowed them to stay on the cutting edges.”

“Coming out of the meeting, we looked at each other, and we were like, Hey, this is a really good company,'” says Arlander.

Looking at the financials only strengthened that sentiment. The seller, The Bowes Family, said the company “has grown about 20x since we bought it, in excess of over 30% a year,” according to family member John Bowes.

Since the close of the deal, Perkal and Arlander have worked closely with management and both parties have concluded that the company should spend more time on trying to develop sales efforts to grow the market rather than try to cut costs. They say that expanding CamelBak’s market to its full potential will take time, and thus Bear has no immediate exit plans.

“We don’t go into these deals planning our exit or the time frame for it,” says Arlander. “As long as we go into it feeling that the company can continue to grow with our help, the exit opportunities will appear.”