Lehman Brothers Merchant Banking got a head start on its holiday shopping this month, agreeing to buy four Unilever consumer product brands and closing a deal to acquire Hunter Fan Co. Terms of the deals were not disclosed.
Through the Unilever transaction, Lehman acquired the Rit fabric dye, Niagara ironing products, Final Touch fabric softener and Sunlight dishwashing detergent brands, which contributed $107 million to Unilever’s sales in the first three quarters of 2003.
In terms of growing the company, Lehman’s Charles Ayres, global head of Merchant Banking and managing director, said: “It’s literally as simple as putting attention on what are already strong brands… Focus on repackaging, adding new sku’s, product extensions, altering your advertising and marketing methods, hopefully all this will lead to increased volume in caseloads and an increase in the customer base.”
Additionally, Lehman will look to supplement any organic growth with expansion through further acquisitions. “This will be a platform,” Ayres said. “And with additional brand acquisitions we’re hoping to build this company to be a $300 million to $500 million revenue business.”
He added that investment thesis surrounding this transaction does not warrant a turnaround from the products in order to be successful. “A 300 to 400 basis-point jump would be great, considering [the brands] have shown basically flat growth.”
Lack of experience should not be a factor as Ayres is not new to the consumer product platform, having helped DB Capital Partners put together Prestige Brands, which now resides in MidOcean Partners’ portfolio. Prestige, reportedly up for sale with a price tag around $400 million, is a consumer products platform that counts the Comet, Chloraseptic, Clear Eyes and Prell brands among its holdings.
Lehman Brothers would not discuss the purchase price, but did say the firm expects to complete the transaction either by the end of the year or early in the first quarter in 2004.
Keeping up its precipitate pace, Lehman Brothers Merchant Banking also closed a deal to acquire Hunter Fan this month, buying the business from private equity firms Stonebridge Partners and Weston Presidio Capital. Neither side would disclose the purchase price, although Ayres said the enterprise value rests in the mid-$200 million range with an EBITDA multiple of well under seven times. J.P. Morgan Chase will lead the debt financing, including a term loan and a revolving credit facility that was undrawn at the deal’s close. Northwestern Mutual Life and Oaktree Capital Management also placed a $50 million mezzanine tranche into the debt package.
As in the Unilever buy, Ayres again cited Lehman’s comfort in the branded consumer-product sector as a draw to doing the Hunter Fan deal. “It really comes down to Hunter being the only national brand that remains in the [ceiling-fan] market today. It has a very strong franchise, with a name that has been around for over 100 years.”
Hunter, headquartered in Memphis, Tenn., controls both the Hunter and Casablanca brands of ceiling fans, and through the Hunter name, also manufactures and markets other home products such as air purifiers, humidifiers and thermostats. As far as performance, the company has tripled its size in revenue and cash flow in the last 10 years, according to Ayres.
The sellers of Hunter Fan, Stonebridge and Weston Presidio, were able to generate a substantial profit from the sale. Michael Bruno, Jr., a managing partner at Stonebridge, said the investment yielded an IRR “well north of 60%” on a gross basis, and generated an “over $100 million” gain from the transaction. The two firms acquired the business in the spring of 2002 when Howard Leach divested the investment following his appointment as the U.S. ambassador to France.
Lehman used capital from the bank’s balance sheet to fund both transactions, and when asked about the possibility of raising a fund for future acquisitions, Ayres declined to comment.