Deal of the Year, Middle Market/Overall, 2016: Arbor Investments

Arbor Investments turned its buy of Gold Standard Baking Inc into more than just a sweet deal by boosting the company’s production of croissants five-fold and adding a heaping scoop of new customers.

Arbor sold Gold Standard Baking in April 2015 to Parallel49 Equity (formerly known as Tricor Pacific Capital Inc). The Chicago private equity firm made 9.4x its money with the sale, generating a 44 percent gross IRR on the deal.

Arbor’s investment dates back to 2008. At the time, Gold Standard, needed capital and expertise to get to the “next stage,” said CEO and President Yianny Caparos. “That’s what Arbor provided. They were great partners, with great expertise.”

Caparos and his brother George had bought the regional croissant bakery six years earlier from founder Frank Kuchuris. The brothers retained a minority stake in the company after selling the majority to Arbor.

It’s the croissants

Arbor made some key decisions in its stewardship of Gold Standard. One year after acquiring the bakery, Arbor installed a second high-speed croissant line. The PE firm put in a third line in 2012. The upgrades helped Gold Standard increase its croissant output five-fold.

Gold Standard has one plant, on Chicago’s south side, that houses its four production lines. The company now makes about 10 million croissants a week as well as 300,000 Danishes, Caparos said. That’s up from 2 million croissants and 100,000 Danishes Gold Standard baked each week in 2008, he said.

Gold Standard is now the nation’s biggest producer of low-cost croissants, Caparos said.

WalMart, Burger King

Adding customers was another step in expanding Gold Standard. The company made just one acquisition while it was owned by Arbor. In 2012, Gold Standard bought Oven Fresh Baking, also of Chicago. Oven Fresh also made croissants and Danishes, but the company had something that Gold Standard needed. “They had the customer relationships we coveted,” said Joseph Campolo, co-founder and president of Arbor.

WalMart Stores Inc was one of those customers. The retailer had been using frozen croissant dough that required 12 hours of preparation before it could be sold, Caparos said. Gold Standard was abe to win over WalMart because its “thaw and serve” croissants required only a couple of hours to defrost before they could be used, he said. Gold Standard now makes private-label croissants and Danishes for the retailer. “We were excited to add a customer like WalMart,” Caparos said.

Gold Standard’s croissants also helped it secure Burger King Corp as a customer. The fast-food chain had been using microwavable croissants for its breakfast sandwiches or “croissan’wiches.” Gold Standard’s croissants, by comparison, are toasted, making a better tasting breakfast sandwich, Caparos said.

He credits the Burger King relationship to his brother George, Gold Standard’s VP of sales, who diligently called on the fast-food restaurant for seven years before it became a customer. Gold Standard now provides croissants to about two-thirds of Burger Kings nationally, Caparos said. “We displaced a long-standing supplier,” he said.

In 2013, Gold Standard also began making “strip Danishes” — one-pound coffee cakes often made with walnuts, cinnamon and cheese — sold by Entenmann’s, which is owned by Bimbo Bakeries USA. “Danishes are complimentary products to croissants,” Caparos said.

Under Arbor’s ownership, Gold Standard’s revenue nearly quadrupled while the number of employees expanded to more than 400 people. The success prompted Arbor to put Gold Standard up for sale in January 2015.

The PE firm hired Brent Smith and Jim Bertram of William Blair & Co to find a buyer. The auction drew several private equity and strategic firms, Smith said. “It was a very robust auction process,” he said. “Several international strategic buyers went deep into the process.”

Arbor chose to sell Gold Standard to Tricor Pacific Capital Inc, despite having a higher bid from an international strategic. “We felt Tricor Pacific was the best buyer for the business,” Campolo said.

The Caparos brothers retained a small equity position with the sale to Paralell49 and hope to stay with Gold Standard. “You learn in the private equity world that nothing is forever,” Caparos said. “We were sad it came to an end, but it was a great ending.”

Action Item: To contact Gold Standard call (800) 648-7904

Photo of croissants in production courtesy of Gold Standard Baking