Cookie Co. Takes Bite Out of First Atlantic Fund –

With its acquisition this month of Otis Spunkmeyer, a manufacturer of frozen cookie dough and muffins, First Atlantic Capital is readying itself to launch a new buyout effort.

While Roberto Buaron, First Atlantic’s chairman and chief executive officer, declined to provide a target for the new fund, he confirmed that the Otis Spunkmeyer acquisition has brought First Atlantic Equity Partners International II, L.P. to approximately two-thirds invested and that the firm later this year will be launching a fund that will be “substantially larger” than the $81 million Fund II.

Although Fund III will continue to target buyouts of companies valued at between $50 million and $250 million, Mr. Buaron said the speed with which First Atlantic deployed Fund II’s capital will impact the fund’s size.

The firm closed Fund II in mid-1997 after a drawn-out fund raising that lasted more than a year (BUYOUTS Aug. 4, 1997, p. 6), and that followed an earlier hiatus from fund raising altogether (BUYOUTS March 26, 1996, p. 4).

First Atlantic this month took a 60% stake in a recapitalization of Otis Spunkmeyer. Terms of the transaction were not disclosed.

The remaining 40% stake was retained by Kenneth Rawlings-the company’s founder, former chairman and chief executive officer-and management. Mr. Rawlings will assume the post of vice chairman.

According to Mr. Buaron and Joseph Haviv, a First Atlantic managing director who will become Otis Spunkmeyer’s chairman, the financing for the deal-which was led by Gleacher Natwest and GE Capital Commercial Finance-had to be restructured after it was initially agreed upon in August.

The firm had planned on funding the acquisition through a high-yield offering, Mr. Buaron said, but was sent scrambling to re-negotiate after the high-yield markets crumbled at the end of last year. “Certainly, it was a considerable effort to get the deal done,” Mr. Buaron said. “It required a great deal of flexibility on our part and on the part of the seller.” The final financing was made up of portions of senior debt and subordinated debt, although Mr. Buaron and Mr. Haviv declined to disclose the size of the financing package.

Based in San Leandro, Calif., Otis Spunkmeyer manufactures and distributes frozen cookie dough, muffins and specialty baked goods to both wholesale and retail channels. The company, which had 1998 revenue of more than $200 million, has three manufacturing facilities, 58 sales centers and more than 450 direct store delivery routes.

First Atlantic was attracted to Otis Spunkmeyer because of the company’s strong brand name recognition, its focus on two key product lines-cookie dough and muffins-and its established direct store delivery routes that will allow First Atlantic to expand its product line, Mr. Buaron and Mr. Haviv said.