TVV Pecks Out 14x Return On Poultry Deal

Target: Albertville Quality Foods Inc. and Southern Quality Meats

Seller: Tennessee Valley Ventures LP

Return: 14x

Sponsor: H.I.G. Capital LLC

Tennessee Valley Ventures LP dedicated a decade to managing Albertville Quality Foods Inc., a processor of prepared chicken products, before selling the Alabama company to another buyout firm, H.I.G. Capital LLC. The buyer plans to make add-on acquisitions.

TVV, of Nashville, announced the sale of Albertville and a sister company, Southern Quality Meats Inc., on March 8. H.I.G. Capital—a diversified investor that also has interests in venture capital, distressed debt, real estate, and public equities—said it sees its new asset as a platform for expanding deeper into the food industry.

Financial terms were not disclosed, but Andrew W. Byrd, TVV’s president, said his firm earned 14x its invested capital on the deal.

“The Albertville and Southern deal is kind of an example how our investment strategy works,” Byrd said. “What we do is very much traditional, leveraged buyout-type investing. We buy them, we run them, we sell them.”

TVV bought Albertville, a poultry processor based in Albertville, Ala., in 2000. The deal included an 11,000-square-foot facility, about 120 workers and a customer list that included regional restaurant chains such as Cracker Barrel and Huddle House, Byrd said. The firm brought in new management, headed by Don Haynie as president, and set about positioning the company for the future.

An early priority was to diversify the company’s income stream and product lineup. Along the way, Haynie brought Southern Quality Meats, a Pontotoc, Miss.-based producer of country-style pork sausage products, to TVV’s attention as an add-on investment, Byrd said. That deal was closed in 2002.

Although TVV consolidated some operations, such as management, accounting, and HR, it maintained the two investments as discrete businesses, Byrd said. “We managed them really as one company, but we maintained separate ownership and we were able to sell them together.”

Over the years, TVV made operational improvements—replacing a cryogenic freezing system in Albertville with a more efficient one that used ammonia—and back office efficiencies, such as initiating a computerized system for tracking inventory, cost of production, sales, and gross margin by product line, Byrd said.

The company attracted restaurant customers with a national scale, including Applebee’s, Sonic, Chili’s, Shoney’s, and Wal-Mart, expanding the Albertville plant to 56,000 square feet and employment to 540 workers.

The chickens changed too over the period, growing from an average of two or three pounds to five or six, Byrd recalled. “We had to improve our system of cutting chicken,” he said. “We were able to shape the chicken so that it fills the center of the plate.”

The firm decided a year ago to exit the holding, retaining Brookwood Associates LLC to manage the sale. TVV, which focuses on companies in the energy, communications and industrial sectors, tries to pick portfolio companies that are recession-resistant. In that sense, the exit of Albertville and Southern made for a timely choice, he said.

“During these difficult economic times, more people are eating chicken and sausage,” Byrd said. “People are eating less steak and sushi.” By the end of September, TVV had a letter of intent from H.I.G. Capital, Byrd said.

Richard Stokes, a principal at H.I.G., said his Miami firm had been studying the food industry for some time, and found Albertville and Southern an attractive way to enter that market.

“The strong value proposition that they are able to provide to their customer base is very compelling to us,” Stokes said. “When the opportunity arose, we were very well positioned to move quickly and get this transaction completed and financed.” Although he was cautious in discussing H.I.G.’s plans for the company, Stokes said the firm has definite ideas for both selling and buying.

“There are a number of organic growth initiatives that we are pursuing,” he said, focusing especially on attracting new customers in the franchised and institutional food service business.

And Albertville and Southern also provides a beachhead for H.I.G. to pursue additional deals, Stokes said. “We’re certainly interested in add-on acquisitions. We think this is a great platform for us.”