Nautic Gulps Down Big Train

Target: Big Train

Buyer: Nautic Partners

Seller: company founders

Purchase price: $100 million

Fund: Nautic Partners V

Debt financing: GE Antares Capital

Legal counsel: Edwards Angell Palmer & Dodge

Seeking to capitalize on the explosive growth in coffee houses over the past decade, the Providence, R.I.-based Nautic Partners acquired drinks maker Big Train in a deal valued at approximately $100 million.

Big Train is a Foothill Ranch, Calif.-based provider of powdered and liquid beverage concentrates. It makes the powders or syrups used in making smoothies, ice coffees, lattes or teas, and delivers to a network of more than 7,000 bakeries, coffee shops and other independent retailers.

The $100 million deal was split evenly between equity and debt, with Nautic Partners controlling 90% of the equity and Big Train Founders Craig Myers and Paul Roy holding onto the balance along with others in management.

Nautic got to know the company through its ownership of FFG Holdings, a provider of flavor and fragrance additives that it acquired in 2004. FFG is a supplier to Big Train, and ultimately gave the firm an inside track to the investment. “One of the reasons we were a good buyer is that we knew a lot about it as a vendor,” said Fraser Preston, a principal of Nautic who worked on both the Big Train and the FFG deals.

He claimed it was the second transaction this year in which Nautic was able to secure a propriety look at a company and close on a deal as a result. (The other was Nautic’s purchase of vehicle enclosures manufacturer Curtis Industries.)

“We knew it was a very nice business because our own business with Big Train has grown quickly,” Preston said, adding that a closer look at the company revealed numerous other growth possibilities.

“What we didn’t know until we got under the hood is that there are a ton of opportunities confronting this business in terms of new products and geographic expansion.”

Preston identified Latin America and the Caribbean as two potential areas for growth, considering cool beverages are very popular in those regions. He also cited that Australia, the Middle East and Europe have expansion potential as well, particularly via hotels and resorts. Meanwhile, domestically, he described the convenience store market as largely un-penetrated.

“If this company can achieve a fraction of its potential to grow it will be a significantly bigger company playing in new markets internationally and new product markets domestically,” said Preston.

The popularity of Starbucks has spawned a new breed of independent coffee shops throughout the country. According to the Specialty Coffee Association of America, these independent shops create a market in the United States that totals $9 billion. Americans drink more than 300 million cups of coffee every day.

Nautic is banking in part on two trends it sees developing in the coffee shop and specialty beverage market. One is that the independent coffee houses that have sprouted up in the shadow of Starbucks will continue their significant growth. The other trend is that those coffee houses continue to add new products to attract customers beyond the morning coffee rush. Big Train is positioned to capitalize on the growing market for smoothies, coffee creams and other afternoon snack-type beverages.

Nautic Partners was founded in 1986 and has more than $1.8 billion under management. It is currently investing out of Nautic Partners V, a $1.1 billion fund that closed in 2001. — M.S.