What does a firm like VMG Partners, which specializes in consumer-focused investments, do in an economy marred by low consumer confidence?
We stick to our knitting in this type of an economic cycle. Really, regardless of the cycle, there are certain categories, certain companies, and certain brands that will do very well and outperform the market. Our goal is find those categories and find those brands for our investors.
What do you consider those categories to be right now?
There are really two key sectors where we’ve positioned our fund to participate in this economic cycle. One is in the pet space, where we have two investments. There was an interesting survey done recently that asked people what they would be the least likely to give up in terms of consumer spending. The number-one answer was prescription drugs, which makes sense. Number two was pet products, including pet treats and pet food. Third was utilities. So having exposure to the pet sector in this market has been very successful.
The other sector is the healthy snack space. One of our businesses is Pirate’s Booty, a healthy snack geared primarily toward children. In this environment, you’re going to cut back on vacations and new cars, but if you’re kid is a big fan of Pirate’s Booty, you’re probably not going to cut back on that $2 expenditure.
It sounds like you’re well-positioned to cope with the market woes. Have there been any adverse affects to your portfolio thus far?
Clearly there is an impact. But if you look across our portfolio of seven investments and you weigh them based on their revenues, our portfolio is up 30 percent year-to-date versus last year. What this downturn does is it forces us to focus on what really are the key issues in building a brand in today’s market.
VMG hasn’t completed a new acquisition so far this year. Do you plan on closing any deals in the remainder of 2009?
Our goal is to acquire one or two companies this year. So far we have been very focused on working with our companies to guide them through this economic cycle. The interesting thing about this downturn is it is forcing companies to really think about who their partner is. That’s especially the case with selling shareholders who are being asked to rollover equity into transactions. We think that puts us in a unique position—because of our track record and industry experience—to really be value-add to those owners.
What would be your dream company to acquire right now if you didn’t have to worry about things like deal size or financing?
I have three teenaged boys. I would love to own Red Bull because I would be the coolest dad in the neighborhood. It’s a great brand. They do very innovative marketing, and they’ve kept that brand fresh and growing over an extended period of time. But Red Bull is a private, European company with several billion in sales, so its not something that VMG would be able to do—to the dismay of my boys.