Catterton May Have Two Funds To Raise

Firm: Catterton Partners

Fund: Catterton Growth Partners LP

Sector Focus: Consumer goods and services, including food and beverage; retail and restaurants; consumer products and services; and media and marketing services.

Founded: 1990

Strategy: Equity checks of $10 million to $30 million for control investments in fast-growing consumer companies

Investment Pros: 11 partners

With a fledgling growth fund that seems to be performing strongly and a main fund invigorated by a supplemental fundraise just more than two years ago, consumer buyout specialist Catterton Partners rides a dual fund strategy, segregating its investments by deal size in its specialized market.Both funds appear to be due for a refill.

Catterton Growth Partners LP, its $300 million 2008-vintage fund, is returning a 3.57 percent IRR as of June 30 2011, according to the Pennsylvania Public School Employees’ Retirement System, even though the fund is only four years into its investment period and probably has at least another year to go. The fund was about two thirds drawn as of June 30, with PSERS having contributed $50.3 million of its $75 million commitment.

Meanwhile, Catterton Partners VI LP, its $1 billion 2006-vintage main fund, devoted to larger transactions, is sporting an 8.85 percent IRR, according to PSERS data from June 30, 2011. Fund VI was more than 75 percent drawn, with the pension having contributed $100 million of its $130 million commitment.

The firm, which calls itself the leading consumer-focused private equity firm in North America, has more headroom than that 75 percent figure alone would indicate, due to a $300 million fundraise during the depths of the financial crisis in 2009 for a vehicle known as Fund VI-B, a so-called supplemental fund designed for new investments alongside the Fund VI, as sister Web site peHub reported at the time.

Before the collapse of financial markets in September 2008, Catterton Partners had been preparing a 2009 marketing campaign for Fund VII, which was envisioned as a $1.25 billion to $1.5 billion vehicle, peHub said at the time. After settling instead on the more modest supplemental fund, the firm pushed plans for Fund VII into an indefinite future. A person with knowledge of the firm’s activities said Catterton Partners has begun having conversations again with investors about Fund VII, although nothing is specific at this point.

Greenwich, Conn.-based Catterton Partners declined to comment for this article. But the record shows that the firm typically has returned to the market fairly consistently every three or four years since its founding in 1990. Frank Vest, founder of a predecessor firm, the investment bank Catterton Group Inc., founded the partnership with J. Michael Chu, an executive with the investment manager First Pacific Co., in conjunction with former Treasury Secretary William E. Simon, who helmed his own eponymous firm and who had been a leveraged buyout pioneer in the 1980s, doing deals for card publisher Gibson Greetings and mover Atlas Van Lines.

The shop raised its first three funds under the Catterton-Simon banner, before Simon stepped back to adviser status for the $400 million Fund IV in 2000. Today’s Catterton’s Web site lists 11 partners and counts former U.S. Sen. William W. Bradley (who also was a two-time NBA champion while with the New York Knicks) among its senior advisers.

In its early years, Catterton Partners focused exclusively on the beverage industry, but by the mid 1990s the firm had broadened to a wider range of consumer-oriented companies. Today, the firm says it invests in all major consumer segments, including food and beverage, retail and restaurants, consumer products and services, and media and marketing services.The firm has invested in companies both high-profile and diverse, from the retailer Build-A-Bear Workshop to the restaurant chain P.F. Chang’s China Bistro and the fashion house Halston.

Growth Fund

The firm formally inaugurated its growth equity strategy with the March 2008 close of Catterton Growth Partners LP, which closed at its $300 million hard cap. At the time, the firm said it would cut checks of $10 million to $30 million for control investments in high growth consumer companies

“Catterton Growth Partners LP will enable us to capitalize on these opportunities and meet the demand for capital to support the development of small-cap consumer companies, while complementing the efforts of our buyout funds,” said Scott Dahnke, managing partner at Catterton Partners, in the press release announcing the close of the fund.

At the time of its close, the growth fund had already invested $18 million in Sweet Leaf Tea Inc., a maker of all-natural, ready-to-drink teas, and a $17 million investment in Miss Matched Inc., a retailer specializing in fashion and home accessories targeting young girls and their parents.

Sweet Leaf Tea also provided Catterton Growth Partners with its first exit. The firm sold the distributor in May 2011 to Nestle Waters North America Inc., a unit of the Swiss foodmaker Nestle SA. Although the financial details were not disclosed, Nestle Waters said the Austin, Texas-based drinkmaker had combined sales of more than $53 million in 2010 under its Sweet Leaf and Tradewinds brands. (Sweet Leaf acquired Cincinnati-based rival Tradewinds Beverage Co., a bottler of teas and juices, in April 2010.) Dow Jones reported at the time of the Nestle Waters sale that Sweet Leaf Tea had had revenue of less than $10 million at the time of the Catterton investment.

Along the way, Catterton Growth Partners has made a variety of other deals, often in the beverage space but frequently elsewhere. For instance, the firm partnered with Pepsi Bottling Group Inc. in September 2009 to buy O.N.E., a coconut water company, for an undisclosed amount. It followed that deal with the February 2010 acquisition of Aquasana, a maker of home water filtration systems.

In other sectors, Catterton Growth Partners bought a majority stake in Alasko Foods Inc., a Canadian distributor of frozen fruits and vegetables, in September 2010, and in October 2011, the firm provided an undisclosed amount of growth equity financing to ClearChoice Holdings, a developer and manager of dental treatment centers.

At the same time, Catterton Partners has continued to do larger deals through its main funds, although the firm often does not distinguish transactions funded through Fund V, Fund VI or Fund VI-B.

One of the most notable was its take-private of the retailer Restoration Hardware, a June 2008 deal. Restoration Hardware, which sells furniture and home wares targeting the historic renovation market, filed in September 2011 to go public again. In its most recent filing, in December, Restoration Hardware said it had $137 million in debt and $218 million in stockholders’ equity, but it did not indicate how much it would raise in the offering or how the proceeds would be divided among the company and selling shareholders.

Catterton Partners also has done a series of deals to support its platform company Mid-Atlantic Convenience Stores, which is designed to roll up a highly fragmented industry. In June 2010, the firm acquired a majority stake in Uppy’s, a Chester, Va.-based convenience store chain, to anchor the platform, and it followed that with the August 2010 acquisition of 58 convenience stores in Northern Virginia and Maryland from Exxon Mobil Corp. MACS now has nearly 300 convenience store operations.

The firm has been active in other areas as well. In December 2010, for instance, it acquired Noodles & Co., an operator of about 250 casual restaurants.

And on occasion, Catterton Partners has teamed with others, although as with the Pepsi deal for O.N.E., most of the deals we found for this report date from 2009, when the economy was still reeling from the financial crisis that began in 2008.

In July 2009, Catterton Partners and Highland Consumer Fund, a $303 million pool raised in 2007 by venture capital firm Highland Capital Partners, teamed to buy the StriVectin “cosmeceutical” brand of products from the skin-care products company Klein-Becker USA LLC. And in October 2009, Catterton Partners teamed with distress specialist Sun Capital Partners Inc. to buy the assets of Lang Holdings Inc., a bankrupt calendar and stationery products supplier, for about $25 million.

Other known investors in Catterton Partners funds include AlpInvest Partners, Colorado Fire & Police Pension Association and the Employees’ Retirement System of Rhode Island, according to the Thomson One database.