Gryphon Investors has picked up the Eight O’Clock coffee division of The Great Atlantic & Pacific Tea Co. (A&P) in a carveout deal valued at $107.5 million.
To finance the transaction, Gryphon tapped BNP Paribas and Bank of New York to provide a senior debt facility, which has been billed as a $65 million package. New York Life Partners will also contribute mezzanine financing and a minority equity stake to the deal. The deal includes a $20 million earnout, which will be paid to A&P if certain performance levels are reached.
“[Eight O’Clock] is a dominant player in the coffee category, but it’s been a consumer packaged goods business inside a large corporate retailer-it’s been an undermanaged brand,” said Kurt Kaull, a partner with San Francisco-based Gryphon and head of the firm’s consumer retail group.
Gryphon will first focus on rejuvenating the Eight O’Clock brand, then on building its business through acquisitions. “Historically the company has not had any meaningful marketing or advertising dollars thrown its way, but it’s a 150 year-old brand and has shown amazing resilience,” said David Andrews, founder and managing partner of Gryphon.
Under Gryphon, Eight O’Clock will look to expand geographically. The coffee can only be found on the East Coast now, but going forward, the company intends to broaden its distribution to the Western markets. Once the turnaround is complete, Gryphon will look to add to the business with select acquisitions.
Gryphon likes the upward trends the gourmet coffee segment has experienced in recent years. “There’s a rising tide occurring with the amount of money people will spend for quality coffee, such as Starbucks,” Andrews said.
For the purchase, Gryphon used Gryphon Partners II, a $424 million vehicle raised in 1999. The firm has also reportedly launched the fundraising for Gryphon Partners III, setting a $600 million target. Merrill Lynch has signed on as the placement agent for the fund.
Intermediary: Lehman Brothers
Gryphon Lawyer: Kirkland & Ellis
Gryphon Accounting firm: Ernst & Young