Lincolnshire Eats Nestle Beich’ Fundraising Unit –

Lincolnshire Management recently took a bite out of Nestle with its acquisition of Kathryn Beich, the candy company’s fundraising division. The deal, which priced for under $50 million, is expected to close by the end of this month.

The Kathryn Beich unit had been a part of Nestle since 1984, when the candy giant acquired the unit. However, the unit has been in existence since 1952, when its namesake began marketing her grandfather-in-law’s chocolates to schools and churches for fundraising purposes. T.J. Maloney, president at Lincolnshire, said the division is “highly profitable,” enjoying growth every year for the past 15 years and annual sales approaching $100 million.

While the specific terms of the transaction were not disclosed, Maloney said the purchase price was less than $50 million. Lincolnshire was the sole provider of equity, while Comerica provided senior debt for the deal and Canterbury Mezzanine provided subordinated debt. While Lincolnshire was not alone in bidding for the unit, Maloney said a more aggressive approach helped Lincolnshire win out in the end. Specifically, Maloney cited Lincolnshire’s arrangement with Canterbury, which helped remove some of the financing risk, as an advantage in the auction.

As part of the acquisition, the new company agreed to a long-term, multi-year deal with Nestle that will allow it to retain exclusive rights to distribute the candy maker’s branded products, including Nestle Crunch, Baby Ruth, 100 Grand and other candy bars and products. The agreement also contains additional options that could extend the life of the contract. The terms of the agreement, according to Lincolnshire Principal George Henry, remain consistent with historical pricing and costs. Also, Nestle will continue to produce Kathryn Beich-owned products, including Katydids, Golden Crumbles, Butter Crumbles Imps and other candies exclusively for the new company.

Lincolnshire intends to keep Kathryn Beich’s current management in place. Upon the closing of the deal, Mike Holzworth, who currently sits as a vice president and general manager at the unit, will become president and chief executive officer of the new company. Lincolnshire, meanwhile, will control a majority of the board seats.

Lincolnshire plans to grow the company organically through expanding its product line beyond just confectionery products. The company already markets wrapping paper, note cards, cheese spread, summer sausages, garden tools and gadgets, among other items, through its catalogs. Going forward, the new company expects to announce a joint venture with a leading magazine subscription firm, boosting its presence in that area, and Lincolnshire will be keeping its eyes open for any add-on acquisitions that could further supplement Kathryn Beich’s offerings.

Additionally, the firm is looking to expand geographically. While Kathryn Beich’s presence is strong in the Midwest and the Northeast, the company wants to extend its reach into other regions. Henry pointed out that Lincolnshire already has experience in distributing to schools across the country, citing portfolio company Riddell Sports Group, which distributes athletic equipment to high schools and colleges. Further, Henry added that as the company continues to supplement its product offerings, it will in turn be able to better attract salespeople, which will also help the company grow.

In acquiring Kathryn Beich, Maloney noted that the firm was attracted to the division’s ability to perform in a slow economy, as well as when times are good. He mentioned that as school boards tighten their budgets to contend with a sluggish economy, they turn to fundraisers to help subsidize certain expenses.

The acquisition is part of Lincolnshire’s second fund, which in 2001 closed with roughly $315 million. Looking ahead, Michael Lee, also a principal with the firm, said Lincolnshire is expecting to announce a number of exits in the coming months, as the firm remains busy on both the acquisition and realization sides of the business. Specifically, Lee projected that the firm will announce its exit on five of its investments in the next six months.