Juvenile Products Buyer Snapshots “Market Intelligence for Industry Players” Q3 2012 Capstone Partners Investment Banking Advisors BOSTON | CHICAGO | LOS ANGELES | PHILADELPHIA | SAN DIEGO | SILICON VALLEY Juvenile Products Buyer Snapshots CORPORATE AND PRIVATE EQUITY BUYERS ACTIVE The Juvenile Products industry has been enjoying a healthy level of M&A activity, with acquirers seeking to build product offerings, capture market share and secure new brands via acquisitions. While both corporate and private equity buyers are active in the space, CAPSTONE PARTNERS LLC 176 Federal Street we note the plethora of private equity groups that are targeting consumer products 3rd Floor companies, including those focusing on juvenile products. Boston, MA 02110 Private equity buyers have had a long-time attraction to the sector, primarily due to the www.capstonellc.com product innovations of smaller companies and the draw of orphan brands. Smaller companies in the juvenile products industry are known to invent entirely new product categories or to build a better mousetrap in an existing class. Such companies are ideal targets for private equity sponsors with the financial resources and operational JUVENILE PRODUCTS TEAM wherewithal needed to build a sizable company in the category. These private equity sponsors often look to combine several orphan brands into one powerhouse entity that John Ferrara can later be taken public or sold to a large corporate buyer. As a result, they are typically President, Managing Partner looking for acquisitions that can serve as either an initial platform investment or as a (617) 619-3325 [email protected] complementary add-on to an existing holding. Private equity firms are actively seeking sound investments in the sector with the belief Jacob Voorhees that it will benefit from a strengthening economy as well as the stable growth, high Director, Principal (617) 619-3323 margins and strong brand equity in this sector. On the other hand, juvenile products [email protected] companies are welcoming private equity for a number of reasons, including their commitment to growing brands to their full potential; interest in keeping existing management in charge; and their capital, management expertise and strategic guidance Sophea Chau Vice President to support a firm's growth. (617) 619-3307 [email protected] Capstone expects that the sector will continue to attract strong interest from buyers based on compelling industry fundamentals including a growing birthrate, perceptions of necessity among consumers for various juvenile products and a strengthening economy that is contributing to demand. In addition, there are several macro-economic factors in place which should continue to spur activity. These include an abundance of cash in the hands of corporate buyers, a tremendous amount of un-deployed private equity capital (estimated at approximately $430 billion, according to PitchBook Data, Inc.), the strong reappearance of commercial lenders buoyed by low interest rates and an improving economy, all of which should continue to drive M&A activity. Capstone maintains an active dialog with both corporate and private equity buyers in the industry and keeps a detailed database of active acquirers, including those profiled on the following pages. Our deep experience and robust activity in this sector allows for immediate access to key decision makers among the industry’s most active acquirers and investors. 1 Q3 2012 Juvenile Products SAMPLE ACQUIRER PROFILE: WESTON PRESIDIO Weston Presidio has been a leading provider of growth capital for the past twenty years, investing in lower middle market growth companies with proven management teams. Their industry focus targets the consumer, industrial growth and business services sectors, where they have historically leveraged past experience and industry expertise in order to realize significant returns on their investments through growth and operating improvements. For Weston Presidio, the strength of the management team is a key deciding factor in their investment decision; they seek strong teams that have demonstrated the skills and dedication required to run a successful business, viewing these capabilities as an indication of what future growth can be attained post-transaction. In February 2007, Weston Presidio acquired Evenflo Company, Inc., a manufacturer of baby care and juvenile products. The transaction was valued at $260 million. Evenflo, founded in Ohio in 1920, has marketing and sales operations in the United States, Canada, Mexico and the Philippines. Weston Presidio, impressed by Evenflo’s historical success and management expertise, considered the company a great fit per its investment criteria. As a company with over 85 years of success in the juvenile products market, Evenflo had built a strong customer base and established an excellent brand image, one that was associated with a line of products ranging from car seats to high chairs, diaper bags to doorway jumpers. The wide array of products was another appealing attribute for Weston Presidio, recognizing the potential for growth associated with expanding the company’s geographic footprint. In January 2008, Weston Presidio and Evenflo expanded their presence in the juvenile products space by acquiring Ameda AG from Hollister Incorporated. Ameda AG, a Swiss company founded in 1962, designs and produces breast pumps and products. Evenflo was attracted to Ameda’s well-established brand, stating that “Evenflo will retain the Ameda brand name, which is widely respected within the breastfeeding community and amongst lactation experts.” The appeal of product expansion was also a driving factor in the transaction, with Rob Matteucci, CEO of Evenflo noting, “The addition of Ameda to our family of products further expands our ability to provide moms the widest range of options to enhance their breastfeeding experience.” In January 2012, Weston Presidio announced it will divest Evenflo México, S.A. De C.V. and Evenflo’s Global Feeding Assets, excluding Ameda to Kimberly-Clark de México. In addition to Ameda, Evenflo will retain its leading juvenile travel and home safety businesses. Weston Presidio is no stranger to the juvenile products space, with past investments and current holdings laying testament to their vested interest in a space with growth potential through product expansion, strategic add-on acquisitions, management improvements and operational advances. 2 Q3 2012 Juvenile Products SAMPLE ACQUIRER PROFILE: COMPASS DIVERSIFIED HOLDINGS Compass Diversified Holdings (CODI) is a premier investor in profitable small to middle market businesses in attractive niche industries. Founded in 2005, Compass Diversified Holdings focuses on acquiring companies with strong management teams and significant market share in a defensible industry. They seek businesses with tangible growth opportunities that can be achieved through a combination of strategic support and increased cash flow in the intermediate to long term. CODI acquired The ERGO Baby Carrier, Inc. in September 2010 for $91 million. ERGObaby designs, markets and distributes baby carriers and related products and accessories for newborns and toddlers worldwide. According to Jon Massoud, CEO of CODI, “ERGObaby is an exciting company for us due to its attractive industry positioning, loyal customer base, stability of core product demand and potential for growth through channel and geographic expansion.” Along with acknowledging ERGObaby’s strong brand recognition, Mr. Massoud also cited favorable market trends such as rising birth rates and increasing affluence in non-western markets as additional incentives behind completing the transaction. ERGObaby was a good fit with CODI’s investment criteria. As a company reporting over $22 million in revenue at the time of the transaction, ERGObaby presented an appealing platform for continued growth founded upon an already well-established business model and sustainable revenue stream. At the same time, the company was still small enough that it could greatly benefit from additional capital in order to take advantage of growth opportunities and expand its geographic footprint. Apart from its financial compatibility, CODI was also attracted to ERGObaby’s solid and proven management team: “We look forward to working closely with Karin Frost, an industry pioneer, and the rest of ERGObaby’s management team to continue their historically strong growth.” Since its investment in ERGObaby in 2010, Compass Diversified Holdings has continued to expand the platform as a nationally and internationally acclaimed provider of juvenile products. In November 2011, ERGObaby acquired Orbit Baby in an accretive add-on acquisition valued at $17.5 million. The acquisition expanded CODI’s global presence in the baby durables market. Orbit Baby, a California based company founded in 2004, produces and markets a premium line of stroller travel systems. Orbit Baby has also established an excellent reputation and fostered a high level of brand recognition as a leading provider of innovative and ergonomic products ranging from car seats to bassinets. The acquisition further solidified CODI’s presence in the juvenile products space, and is indicative of its strategic dedication to well-established companies with proven customer bases and recognizable and well-known brands. 3 Q3 2012 Juvenile Products SAMPLE ACQUIRER PROFILE: NORDIC CAPITAL Nordic Capital invests in all industries and sectors, focusing on large to medium sized buy-outs