A Top Shelf Selection
Invested Banker to the Consumer Industry

A Top Shelf Selection

Description
TARGET: Advantage Sales & Marketing LLC
OWNER/PARENT: J.W. Childs Associates, LP/BAML Capital Partners
COUNTERPARTY: Apax Partners
SEGMENT: Other
TRANSACTION VALUE: Undisclosed
CLOSING DATE: December 17, 2010
ROLE: Exclusive Financial Advisor

Based in Irvine, CA, Advantage Sales & Marketing LLC (“ASM” or the “Company”) was a member-owned cooperative formed in 1997 as a platform to bring together a number of leading regional sales and marketing agencies (“SMAs”). Between 1997 and 2003, 24 regional firms joined ASM as members. These members went to market together under the “Advantage Sales & Marketing” banner, and coordinated certain aspects of their operations including back office and client services to support the Company’s national clients and customers. Following an initial investment in one of these brokers in 2001, Allied Capital Corporation (“Allied”), a leading private equity and business development company based in Washington, DC, acquired a majority stake in ASM and converted it to a conventional corporate structure in June 2004. Under Allied’s ownership, ASM embarked on a consolidation strategy with a view to unify the former Advantage member businesses under a national umbrella.

Between 2004 and 2005, ASM completed a total of 16 tuck-in acquisitions, creating the leading fully-integrated SMA in the United States, providing outsourced sales, merchandising and marketing services to manufacturers, suppliers and producers of consumer packaged goods (“CPG”). ASM was one of the first SMAs with the scale and scope to accommodate the national coverage and support requirements of major CPG manufacturers. At the time of the sale, ASM employed almost 13,000 associates, represented clients whose annual wholesale revenue in all classes of trade exceeded $40 billion, provided services on behalf of over 1,200 CPG manufacturers and managed more than 8,000 food and non-food SKUs.

“When we were told by our partners at Allied that the decision to sell the business was being contemplated, we wondered who the investment banking firm would be that would handle such an important assignment for our management team. When told the firm being considered was Sawaya Partners, we were initially surprised as we had not heard of them. Following a meeting with the principals, we were convinced that Allied had made the right decision. The Sawaya Partners team took the lead in preparing the information memorandum, helping us craft the ASM story, coaching our experienced team for the management presentations and being on our side every step of the way. They even helped us negotiate our management incentive packages. We could not have hoped for a better team and believe Allied made the right choice.”

SONNY KING
CHIEF EXECUTIVE OFFICER, ADVANTAGE SALES & MARKETING LLC

ASM represented Allied’s largest investment in its history. Recognizing the value creation that had been achieved through the consolidation and the attractive M&A environment at the time, Allied reached out to Sawaya Partners to effect an expeditious sale process. Allied had previously interacted with Sawaya Partners “on the other side” of a transaction that led to its acquiring Pharmaceuticals Holdings, Inc., an OTC portfolio company, from Catterton Partners in December 2004. Allied believed that Sawaya Partners could devise a process that was designed to efficiently and effectively identify a compatible new financial partner for ASM’s superb management team and achieve full value – all without disrupting management’s focus on operations, its pipeline of acquisition opportunities or the introduction of new, high value added, marketing services. Without a formal “beauty contest” Allied determined that Sawaya Partners was best positioned to market the ASM story.

Allied was confident that an aggressive timetable could be met without compromising on quality and buyer interest. Based on a careful review of prior transactions and an assessment of strategic and financial buyer psychology, it was concluded that the effort would be largely targeted to the financial sponsor community. Both Allied and Sawaya Partners recognized that ASM would represent an attractive investment opportunity to many financial sponsors. The challenge arose from the careful screening required to yield a broad and yet targeted sales process. Specifics of the process timeline are shown below:

  • The internal process of conducting due diligence, writing the marketing “teaser” and the confidential information memorandum (“CIM”), and preparing the content of the data room started early October 2005.
  • External marketing calls were initiated within 30 days of the kickoff meeting with the management team and Allied and started on or about November 1, 2006.
  • Approximately 35 financial sponsors executed confidentiality agreements with the Company and received a detailed CIM.
  • The preliminary bid date was set immediately after the Thanksgiving holiday weekend, only 20 business days after starting the marketing calls.
  • Reflecting the careful screening of the initial target list, more than 20 preliminary non-binding indications of interest were received, representing a conversion rate in excess of 60% from CIMs sent to indications received.
  • Following a careful review of the indications received, and with the advice of Sawaya Partners and input from Allied and ASM’s management, a manageable number of parties were invited to attend management presentations. These were conducted in a concentrated period in December 2005 with a goal of having them concluded before the holidays.
  • The management presentations were held in a “trade show” like setting, with a full complement of ASM offerings and value added services on display in an office setup that had been completely converted for this purpose.
  • Following these presentations, Sawaya Partners recommended teaming up J.W. Childs Associates, LP (“JWC”) with Merrill Lynch Global Private Equity (“MLGPE”).
  • The majority of the parties that attended the management presentations conducted full business, accounting and legal due diligence during the month of January 2006.
  • Final bids were requested during the first week of February and eventually led to the consortium of JWC and MLGPE entering into a definitive agreement with the selling shareholder.
  • The transaction was announced on March 2, 2006 and closed on March 29, 2006, less than 30 business days later.
  • ASM was sold for an enterprise value of $1.05 billion, subject to certain post-closing adjustments including a one year earn-out.
  • Allied realized a gain on its equity investment of approximately $430 million representing a return of 6.3x its original investment.
  • In addition, Allied was repaid its $184 million in subordinated debt outstanding that had helped fund the initial ASM transaction and certain incremental acquisitions.
  • ASM’s management team had input in the selection of its partner and was provided with an attractive incentive package which Sawaya Partners helped negotiate.
  • Demonstrating its confidence in the Company, its management team and the new owners, Allied retained an equity investment in the business as a minority shareholder and invested $150 million in subordinated notes as part of the new buyout.
  • The sale exceeded ASM shareholders’ expectations of value and terms.
  • JWC and MLGPE acquired a standout business in the consumer services industry led by a superb management team.
  • The transaction also set a precedent for businesses providing similar outsourced services to both CPG manufacturers and retail clients; in the year following the ASM announcement, four generally comparable businesses were sold to financial buyers at similar transaction multiples.

Subsequent Events:

  • In less than nine months following the completion of the transaction, recognizing the on-track performance of ASM and the attractiveness of the financial markets, the new owners effected a $175 million dividend recapitalization that resulted in the return of approximately 46% of the initial capital contributed.
  • As represented during the sale process, “tuck-in” acquisitions continued to become available. Since the acquisition, ASM has completed six transactions, most of them on the marketing services side of the business.
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