Deal of the week: Airborne founder slams Summit Partners

Summit Partners’ investment in Airborne Inc. has turned out to be a massive headache. It featured a busted auction, a class-action lawsuit over false health claims and a violation of covenant agreements.

Last month the firm sold the nutritional supplement maker back to its founder, former second grade teacher Victoria Knight-McDowell.

In an attempt to start anew, Knight-McDowell this month released a video trashing the firm’s management of her company (the video can be seen on the company’s website). In the video, she explains her buying back of the Airborne:

“Three years ago, I sold Airborne to a private equity group and went on to raise my family during this time. However, I became increasingly unhappy with how my company was being managed, and so, in October of 2008, I bought it back.”

What she doesn’t say in the video is that she was a minority shareholder and a board member during Summit’s ownership (according to a regulatory filing). Second, the lawsuits she references in her video chat were based on false claims and bad evidence that were most likely made under her watch.

Summit’s equity investment in Airborne in 2005 was estimated to be about $70 million. About a year later, Summit tried to exit Airborne for an estimated $350 million to $400 million. The auction ultimately failed.

Then, in early 2008, a class-action lawsuit for false advertising was settled. Airborne had claimed to ward off colds and the flu with no legit research backing the claims. The company denied it was in the wrong, but paid $23.3 million in damages.

Knight-McDowell’s purchase back of the company was for an undisclosed amount, but was likely less than what she paid for it, given the lawsuit controversy and current market conditions.

Add to that Airborne’s dire debt situation. In July, the company was levered 7x cash flow and in violation of its debt covenants. The violation, and failure to obtain amendments, lost it access to the revolver. Airborne had $153 million in debt at the time, with about $120 million in annual net sales as of April. All this does not bode well for Airborne’s debtholders.

But in the end, all this doesn’t really matter, financially, for Summit. The firm made back most of its money in a $180 million recap in 2006. Summit Partners paid itself a $73.5 million dividend, according to a story in Buyouts, a PE Week affiliated publication. Moody’s Investor Service called the dividend a ‘substantial part of the original investment.’

Still, the bad publicity is clearly a sore spot for Summit, since the firm has removed all traces of its ownership of Airborne from its website. When asked, a spokeswoman said: “Summit is bound by a confidentiality agreement related to its sale of Airborne Health back to its founder.” —Erin Griffith