VMG Partners Seizes Control Of Snack Maker

Target: Robert’s American Gourmet

Sponsor: VMG Partners

Price: Undisclosed

Financial Advisor: Seller: Rothschild

VMG Partners, a San Francisco-based buyout firm that raised its first fund just a year ago, has agreed to purchase a controlling stake in Robert’s American Gourmet, a Sea Cliff, N.Y., snack food maker. Financial terms weren’t disclosed.

Robert’s American Gourmet was founded in 1986 by former Wall Street trader, Robert Ehrlich, as a producer of salad dressings. The company is now best known for its Pirate’s Booty, Veggie Booty and Smart Puffs brands of healthy snacks. VMG Partners, a lower middle market player that invests in consumer brands, made the investment from its debut $325 million pool, which closed in June 2007.

The decision to sell by Robert’s American Gourmet after years of self-funding stemmed from the desire for expertise in branding as well as key components like manufacturing, packaging and distribution, Mike Mauze, managing director of VMG Partners, told Buyouts. Expansion was also a factor as the company has grown dramatically in recent years due to the surging popularity of natural and healthy snack foods and the kid-friendly nature of its products. Mauze wouldn’t disclose the company’s annual growth rate except to say it’s ahead of that of the natural foods category, which the firm estimates at 15 percent. The company has stated in the past that its annual revenue was around $50 million.

Robert’s American Gourmet has launched more than 350 products in its 22-year history, including Past Life Puffs, a reincarnation-themed snack. And unsurprisingly, given its prolific nature, there have been miscues. In 2006 and 2007, news of food safety violations earned the company bad press. Some of Ehrlich’s products had mistakenly included wheat in products labeled “non-wheat.” Robert’s American Gourmet was also forced to recall Veggie Booty products in 19 states in June 2007 after they were found to be linked to a salmonella outbreak in children.

Mauze said those manufacturing issues have been resolved and that the deal’s purchase price was ultimately unaffected. VMG Partners has already begun working with the company to increase distribution to national grocery stores and club retailers. On the branding side, VMG Partners is helping Ehrlich create new flavors and launch new packaging. Ehrlich’s management position in the company will be complemented by additions to the team, sourced by VMG Partners, Mauze said.

As is typical of lower middle market growth plays, VMG Partners capitalized the deal with a heavy equity contribution and small amount of senior debt, Mauze said. “It provides flexibility. We ultimately use the capital structure techniques to enhance a return but not to get a return,” he said.

VMG Partners’s debut fund is now around 30 percent deployed. Portfolio companies include premium tea manufacturer Mighty Leaf Tea, bag and accessory brand Timbuk2, and Colorescience, a luxury mineral makeup company. Within the consumer sector, the firm targets the lifestyle, wellness, food and beverage, personal care, pet and leisure categories.

VMG Partners made its first investment in 2005 and has yet to have any exits. Mauze and several of his partners hail from the likes of LBO shop TSG Consumer Partners and The Firm, a talent manager and brand developer with investments from Bain Capital and Thomas H. Lee.