After a hotly contested auction for its portfolio company, The Meow Mix Co., J.W. Childs has come to terms with Cypress Group in a transaction worth approximately $430 million, according to a source close to the deal. The sale will net J.W. Childs-which will retain a 10% stake in the cat food maker-more than four times it’s original equity investment, according to a source. Existing management is expected to keep a 10% stake in the company.
Neither side is talking, but a source close to the deal told Buyouts the auction attracted several bidders, including heavy hitters such as AEA Investors, Fremont Partners, Willis Stein & Partners, Del Monte, Proctor & Gamble and Mars.
This is Cypress’ first foray into the food sector. The New York-based firm will shell out $200 million, or roughly 46.5%, of the total purchase price. The remaining 53.5% comes in the form of senior debt, including a $176 million term B loan, a $30 million revolver and a $25 million mezzanine note. The debt is equivalent to approximately 4 times EBITDA, which was approximately $57 million from a 12-month period ending March 31, 2003. The total purchase price is approximately 7.5 times EBITDA, according to the source.
Cypress used its $2.5 billion second fund, which was raised in 1999, to finance the equity portion of the purchase.
J.W. Childs originally purchased Meow Mix from Nestle’s Holdings Inc. and Ralston Purina Co. in October 2001 for $160 million as a result of a Federal Trade Commission ruling that forced Nestle and Ralston to sell Meow Mix because holding onto it could constitute a monopoly. The purchase price multiple for the original deal was approximately 2.6 times Meow Mix’s $60 million EBITDA, taken over a 12-month period ending September 2001.
At the time of the purchase, Meow Mix consisted solely of its two brand names, Meow Mix’ and Alley Cat’. Under J.W. Childs’ ownership, the cat food chow became a self-contained entity, and, at 96%, achieved the highest level of brand awareness in the cat food industry. In both 2001 and 2002, revenue increased by an average of 8% from the first half to the second half of each year.
Perhaps no other phrase in the buyout world is as over-used as it’s a win-win situation,’ but if there’s a deal that lives up to this axiom this may be it. Sales grew at a healthy, but stable, average of 5.5% over the past five years. Projected fiscal earnings predict double-digit growth over the next five years, with a revenue stream topping $400 million in 2009.
With the high marks in brand awareness, and an ever-increasing number of cats per U.S. household, this deal may afford Cypress the chance to reap the benefits of “the cat food cats ask for by name.”