Yankee Hill Closes Debut Deal; May Raise Fund

Target: Great Western Products

Price: Undisclosed

Sponsor: Yankee Hill Capital Management LLC

Yankee Hill Capital Management LLC, a two-year-old firm with ambitions to raise an institutional fund, has settled on its first deal, acquiring a majority stake in Great Western Products, a supplier of concession foods to movie theaters.

“We participated in a lot of auctions and it was frustrating at times,” said Peter Weinbach, who co-founded the firm along with his father Lawrence Weinbach, of the long wait. “But we stuck to the belief that buying price does matter and [we] just weren’t coming out winners.”

Yankee Hill Capital is assuming a 77 percent stake in the company, while the Great Western Products management group, including its president Ralph Ferber, gets the remaining 23 percent. The capital structure of the transaction includes warrants for Cleveland, Ohio-based lender South Franklin Street Partners, which is providing mezzanine debt in the deal that would dilute the holdings of both Yankee Hill Capital and the management team upon exercise. The seller was not disclosed.

PNC Financial Services Group is the senior lender for the deal, which has a debt-to-equity ratio of roughly 2 to 1. Yankee Hill Capital has yet to raise a formal fund, a move that the firm would like to make in the “not too distant” future. At present, it’s backed by a number of high net-worth individuals and funds contributed by the Weinbachs. The deal came to the firm through a relationship with a mezzanine lender that ultimately didn’t participate in the transaction.

Great Western Products had revenue of about $50 million for its fiscal 2008, which ended in September, and its current run rate is tracking toward revenue of $70 million in fiscal 2009, Peter Weinbach told Buyouts. In general, Yankee Hill Capital targets companies generating annual revenue of $50 million to $200 million and EBITDA of $5 million to $15 million. Beyond the financials, Yankee Hill Capital liked Great Western Products because it believes the company’s customers, mainly movie theaters, should do well despite the recession.

“Historically, that’s been the case,” Weinbach said, citing previous downturns such as the savings and loan crisis in the late eighties and the bursting of the Internet bubble in 2000. The firm also analyzed the upcoming slate of movies to be released over the next few years and found the pipeline strong with films that appeal to small children and teenagers, the groups that drive concession sales. He noted: “Consumables are very attractive in this kind of [economic] environment.”

Based in Hollywood, Ala., Great Western Products provides both food concessions such as popcorn, cotton candy, and nachos as well as cleaning, paper and plastic product supplies. In addition to movie theaters, which make up more than 80 percent of its customer base, the company also sells to sports stadiums and amusement parks. It has about 100 employees.

Peter Weinbach, the son, provides the bulk of the experience in private equity for Yankee Hill Capital. He previously served as a managing director of AIG Horizon Partners, a $340 million buyout fund that was a wholly-owned unit of AIG. His father, Lawrence Weinbach, is the former CEO and chairman of information technology services provider Unisys Corp. He retired from that company in early 2006. He also served as CEO of professional services firm Andersen Worldwide from 1989 through 1997, and is on the boards of Avon Products, UBS AG and Discover Financial Services.

The firm’s investment strategy never wavered during its first two years despite the empty portfolio. Yankee Hill Capital set out to buy middle-market companies with strong free cash flow, recurring revenue and a sustainable competitive edge, and those qualifications remain central to its evaluation process. Valuations, however, had to come down before what the firm saw as an attractive deal could be struck.