‘Take and Bake’ Pizza Maker Delivers Savory Gain

No matter how you slice it, Arbor Investments’s deal to buy and transform Great Kitchens, a “take and bake” pizza maker, was a deserving winner of the Buyouts Small Market Deal of the Year award for 2011. The deal delivered a 69 percent IRR for Arbor, as well as a delectable 17x cash-on-cash return on its original $7.1 million investment.

“We’re really proud of this investment,” said Gregory Purcell, Arbor’s co-founder and chief executive. “And we’re thrilled to have won this award.”

By the time that Great Kitchens was sold in an auction to Aryzta, a Swiss food company, for $180 million in 2010, Arbor had transformed both the company and the concept of private-label “take and bake” pizza, where consumers take home a fresh, ready-to-bake pizza for much less than the cost of a delivered pizza. The company also makes appetizers and sandwiches.

Once Great Kitchens forged agreements to sell its pizzas to nine of the nation’s 16 largest food retailers, including Wal-Mart and Kroger, the company saw revenues soar more than five-fold to $262 million. Over six years, EBITDA grew by a factor of eight to $27 million from $3.4 million.

“Winning the Wal-Mart business was a seminal event for Great Kitchens,” said Purcell. “They are the largest retailer in the space.” With Wal-Mart on board, Great Kitchens grew to be the largest maker of private label “take and bake” pizzas in North America.

Great Kitchens tailors pizzas and packaging to each retailer. At Wal-Mart, pizzas are sold under the “Marketside” label. At Kroger, they are branded “Private Selection.” And at Aldi, pizzas carry the “Mama Cozzi’s” label.

When it bought the company, Arbor’s first order of business was to change the name (it was previously called Cousins Foods) and install a new management team led by Dennis Malchow, a former executive at Oscar Mayer. “Dennis rebuilt the business from the ground up,” Purcell said, expanding it with a state-of-the-art, $30 million factory in suburban Chicago, which allowed Great Kitchens to lower costs and scale-up rapidly.

The company uses its new facility in Romeoville, Ill. to make and package its pizzas and other products, which are then shipped out frozen by truck to various retailers throughout the country. The pizzas arrive frozen and are then are thawed on-site and sold fresh and ready-to-bake from the grocer’s deli case. The company, which uses fresh and natural ingredients, says this method ensures that the pizzas are not at all like their frozen competitors, and that they instead approximate the taste and experience of a restaurant-delivered pizza, but at a much better value.

So, what did Arbor see that others didn’t? “This was the 13th pizza deal we had seen,” said Purcell. What stood out about Cousins, he said, was the value it offered to consumers. “A delivery pizza is two-to-three times more expensive,” he said.

Of course with financials this good, it begged the question, why did Arbor decide to sell it? “Of all the deals I’ve done in my career,” said Purcell, “selling Great Kitchens pained me the most.” The reason, he said, was that Arbor had already held the company for five years, and Great Kitchens was at a point in its development where it needed to expand further. But to do that, he said, would have required an increased time commitment, which might not have sat well with Arbor’s investors.

Arbor, which was founded in 1999, is a Chicago-based private equity firm that specializes in the food and beverage industry. At present, Arbor has $294 million of capital under management in two private equity funds. That tally includes several co-investments, and since its founding the firm has invested in 27 businesses that have together generated more than $1 billion in revenues. Investors include Goldman Sachs, Babson Capital Management and the Kentucky Retirement System.

So what’s next for Arbor? The firm’s biggest portfolio company is Bradshaw International, a private-label maker of bake-ware and cookware that is based in Rancho Cucamonga, Calif. The firm’s products are sold at every major retailer, including Wal-Mart, Target, Sears, Macy’s and Costco. Arbor has owned the company for more than two years and “it’s doing exceptionally well,” says Purcell. No word yet, however, on an exit.

WHY THE FIRM WON

• Delivered very solid performance for investors, including 69 percent IRR and 17x cash-on-cash return on original investment.

• Not only grew Great Kitchens, but also the whole concept and acceptance of “take and bake” pizza.

• Won agreements with nine of the nation’s 16 largest food retailers, which is no small feat.

• Created 437 net jobs over six years, nearly tripling Great Kitchens’s work force to 670.