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31Aug/13

Cave Creek Capital Management Leads Recapitalization of Denny’s and DelTaco Franchisee

PHOENIX, AZ ( 4 September 2013) Cave Creek Capital Management is pleased to announce its investment in QK Holdings LLC, the largest Denny’s franchisee in the United States.  QK operates 84 Denny’s and DelTaco restaurants in Arizona, Colorado, New Mexico, Oregon, Texas and Utah generating over $100 million in annual revenues.

Doug Koch, President of QK Holdings, said, “We are looking forward to growing even faster with the strategic guidance and additional capital from our new partners.  They structured a deal which met our needs perfectly”.  CCCM’s transaction funded both growth capital and personal liquidity for the Founders who maintain a majority interest in the Company.  Robbie Qualls, Doug Koch and Dennis Ekstrom will continue as Chairman, CEO and COO of the Company.  Kevin Fechtmeyer, Managing Partner of CCCM, noted “QK is a classic example of our investment approach; pick strong operators who don’t necessarily need to sell but would like an institutional partner to fund growth,  cash out some of the shareholders and leave the management team with an even larger equity upside in the future.”

Co-investors included Stewart Capital of Stilwell, Kansas and Seacoast Capital, an SBIC based in San Francisco and Boston.  The senior lenders in the transaction included lead agent, GE Capital, National Bank of Arizona and Alliance Bank of Arizona.

Dennys Corp.

Denny’s Corp  (NASDAQ: DENN) is a leading national franchised chain of family restaurants with nearly 1,700 locations worldwide.  Founded in 1953, Denny’s has built a strong brand with its America’s Diner theme and its Grand Slam ™ and $2-$4-$6-$8 Breakfast, lunch and dinner specials.

DelTaco Corp.

DelTaco is a national quick service restaurant (“QSR”) chain offering freshly prepared, value for the money Mexican and American favorites.  The Company, founded in 1964, is based in Lake Forest, CA and has grown rapidly to over 500 locations in 16 states becoming the second largest Mexican QSR concept in the U.S.

Cave Creek Capital Management LLC

Cave Creek Capital, based in Phoenix, AZ, is a growth investor with the flexibility of a family office, the talent of a major firm and a much wider range of capital solutions than traditional private equity funds.  Cave Creek Capital does not require control and can invest in both equity and debt.  With no structural deadlines, we can be patient investors and focus on long term goals.  This enables Cave Creek Capital’s management partners to achieve leadership in their markets and generate exceptional growth and returns.

For more information, please contact:

G. Kevin Fechtmeyer
Managing Partner
Cave Creek Capital Management LLC
2355 E Camelback Rd Suite 510
Phoenix, AZ 85016
480-478-6960
kfechtmeyer@cavecreekcapital.com

13Dec/12

VMC Case Study

Management Buyout Results in Team Owning Majority Stake

Overview
  • VMC purchased from Aeroflex, Inc., was a leader in providing vibration isolation and seismic control solutions to the industrial, military and construction markets
  • Purchased for $8.6 million in 2005 by Management and CCCM
  • Management maintained control of Board and majority ownership with a $1 million investment alongside $3 million mezzanine investment
vmc-home vmc-feature

Results
  • Revitalized management team and workforce produced dramatic improvements
  • Sales and ebitda grew more than 250% within three years
  • Acquired competitor Amber Booth in 2007
  • Management recapitalized the mezzanine debt and equity with Fifth-Third Bancorp in 2009 at an 8x markup in equity value
  • VMC makes strategic acquisitions in 2015; AAC of New York and Dynamic Control Labs in Reno, NV establishing leadership in online sales and testing and certification for compliance with the International Building Code
  • $32 million minority recapitalization completed in May 2015 in conjunction with new partner Seacoast Capital and East West Bank refinancing the Senior Debt

 

13Dec/12

Bastech Case Study

Leveraging Technology to Expand Into New Markets

Overview
  • Company founded in 1961 and profitable every year
  • Proprietary products drove strong customer relationships and recurring revenues
  • Founder limited growth to a lifestyle business resulting in low penetration of a large potential market (100+ U.S. pulp mills and untapped mining market)
  • Attractive EBITDA margins
  • Management buyout completed by Former Dow Chemical executives with The Courtney Group and Cave Creek Capital in August 2007
Results
  • Substantial investment made to expand Company’s facilities, marketing, and administrative systems
  • Hired additional Senior Executives; tripled existing team
  • Expanded R&D programs with several existing products and several under development
  • Expanded mining effort to become leader in US phosphate mining sector
  • Launched international sales effort
  • Sales have grown 300% since closing
  • Customer base has increased 400%
  • Cash Flow (EBITDA) has increased over 100% in four years
  • Recapitalized Senior and Subordinated Debt with SunTrust in February 2012
  • Management team expands in conjunction with debt recapitalization in 2014
  • Lower leveraged company continues to to invest in paper/pulp and mining markets
  • Expansion into international markets with joint ventures with major chemical companies attracted by Bastech’s technology

 

13Dec/12

Kenexa Case Study

Culture of Excellence Drives Billion Dollar Exit

Overview
  • Founded as an executive recruiter, in the late 1980’s
  • Developed the “Hire, Train, Retain” outsourced human resources model
  • Purchased several companies in targeted areas; multiplied the sales post-acquisition by cross-selling to Fortune 500 customer base
  • Rapid growth attracted national attention, including membership in the INC 500 and E&Y Entrepreneur of the Year
  • In 1998, Co-Founder, decided to retire and sell his shares
  • Kenexa’s success in several business lines; online surveys, training and recruiting; required additional investment in product development and marketing
  • A Private Capital partner was chosen (in lieu of an IPO) to assist in the funding of Kenexa’s needs in a multi-level recapitalization
kenexa-home4
Results
  • $27 million of Equity Capital from institutional investors in 1999
  • Repurchased $8 million of stock from the retiring Founder and funded expansion of new product offerings
  • Refinanced a stringent asset-based bank loan
  • Board of Directors expanded, existing management retained control
  • Financing partners added a critical capital “cushion” in 2001 downturn
  • Business model shifted successfully to recurring contracts SAS model software, supporting outsourced hiring and retention programs
  • Completion of IPO on June 29, 2005 at $12/share, rose to $38/share in 2007
  • Sold to IBM for $46/share ($1.3 billion) in August 2012, 12X original purchase price

 

13Dec/12

Liberty Distribution Case Study

Recapitalization lets Liberty’s founder take money off the table, share equity with the management team, and build a balance sheet for growth

Overview
  • Liberty pioneered the direct-to-store distribution of confections and snacks to the check out aisle for non-food retailers in 1998
  • Company had achieved sales of over $40 million by 2007
  • Founder desired liquidity to diversify net worth but wanted to remain with the Company and give his Senior Team equity in the transaction
  • Recapitalization with CCCM completed in 2008 with management owning over one third of the equity
gummy-bears

liberty-jim
Results
  • Capital facilitated future growth in plant capacity and sales
  • Hired additional senior executives to augment team
  • Significant ownership/incentives for highly motivated employees
  • Enhanced management information/sales systems to monitor progress and pursue more prospective accounts
  • CCCM assisted in execution and funding of acquisition of major competitor
  • Expanded customer base and market share- sales increased 400% in four years
  • Industry leadership position was significantly enhanced
  • Recapitalized in 2010 allowing management to repurchase majority stake and CCCM garnered a return of 4.3X the original investment
  • Sold to Vistar Inc in June 2012 at a price of nearly 8X CCCM’s original price
09Dec/12

An Executive’s Perspective on Private Equity


Mark Harshbarger, former CFO and COO of Philosophy, talks to us about his experience helping build one of the most successful cosmetic companies in the USA
K: Mark, thanks for coming in.

M: You’re welcome!

K: For the benefit of our CEOs, we want to showcase the success that you’ve had with Philosophy and talk about the lessons you learned. So why don’t you start by telling us about your role with the company.

M: I worked at Philosophy for a little over ten years. I held several positions, but for most of the time I was both the CFO and the COO. The founder was basically the visionary and the leader of the firm but in terms of executing the day to day operations, that was me.

K: What was the biggest hurdle you faced in growing Philosophy?

M:  Philosophy was an exciting company to work for. It had a very small revenue base when I joined and it grew to be a very nice sized organization when we sold. And it was growing rapidly so it did have many challenges. The biggest  was how to maintain the sales growth but not grow beyond our capacity to serve the customer and the consumer. You only have one chance to make a good first impression and since we were growing so fast we had a lot of first impressions and I wanted them to be solid, good, and lasting.

K: At what level of sales did that hurdle start to become apparent?  20 million, 50 million, 100 million?

M: We started to have serious growth pains right around the $30 million range.  When we were at the $10 to $20 million level, we were fine. But when we went from $30 to $60, $90, and $120 million we started to face many challenges, particularly because  we were making those jumps on an annual basis and also the fact that we were manufacturing 90% of our product.

I would recommend to anyone growing a business that you have to understand what your strengths are, what your weaknesses are and let your ego stay at the door…if there’s a weakness, go get help and don’t hold back.
K: How did you choose people to hire and promote?

M: That’s an interesting question because at the time when we started or when I came on we were a small enough company we did not have the ability to go hire the “big talent” out of a major city. So what I looked for, especially given the culture that we tried to nurture at Philosophy, were individuals who fit that  culture. There was the question of, “Did they have good teamwork and good chemistry”?  It was almost like a sports team because if you have a bunch of stars that don’t play the same play, you are going to lose.  I wasn’t worried about having a lineup of stars, I was more worried about having a team of winners.

K: So how did you determine if a candidate was  a good fit?

M: I listened for a variety of key phrases and words were indicative of where they were coming from: integrity, loyalty, family, respect. There were about eight or nine of them in total.  In an interview I would explore those types of characteristics because I wanted to make sure that you, as an employee, weren’t worried about your career number one or your department number one. Then you weren’t going to be a member of the team. Glory couldn’t be to you. The question was, “Could you focus on the growth of Philosophy and work as part of the team”?

K:  How big was Philosophy in sales and employees when you sold?

M:  When we sold we were approaching the $150 million range and 300-400 employees. Since we manufactured our product, the actual number could range from season to season depending on the number of temp employees that we had at the time.

K: When did you know it was time to sell?

M: It was easier for me to ascertain when it was not time to sell. Philosophy was growing and was a niche brand and for years there were a lot of people that wanted to get in and buy it from us. I knew from a valuation standpoint that we were growing at such a fast pace that our profits were going to grow faster in the years to come. Even though I had faith in that, I had doubts that we could effectively communicate that to outside buyers and to get the true multiple of future earnings that we wanted. So I knew when we shouldn’t sell.  When we were in the $60-$90 million range, it was too soon. We were just starting to leverage our overhead and our ability to grow profits. Our revenues were growing at a very fast rate and on the margin; your EBIT is going to grow a lot faster. Now in terms of deciding when to sell, I intuitively knew when to sell based on my abilities, the company’s abilities, and the staff’s. You get to a point where you’ve almost outgrown your organization with the staff you have and it‘s time to go out and get outside help. We had reached a point where it was time to say that we’ve taken this about as far as we can go, let’s get some outside help that can help us take this to the next level.

K: With the parade of private equity firms coming in how did they differentiate themselves and why did some of them do better than others in that process?

M: Well it’s interesting when I look back at the private equity firms. Ones that struck a chord with me were similar to the types of employees that we hired. Since we were going to sell the entire organization, we viewed them almost as a future employee and really sought out team players. I wanted a team that could fit into our culture, fit into our work style, and there definitely was a difference between many of the firms.  Ones that had the attitude, “Okay, we’ve arrived and we’re taking over,” I wasn’t interested in. But the ones that said, “We like what you have going on here and we want to partner with the strengths that you have and offer the strengths that we have and make the company a better company moving forward,” that was very interesting to me.

K: Any big mistakes that turned you off from some of them?

M: The ones that would turn us off were the ones that would come in and appeared too overly confident or even arrogant. I’m not an arrogant person. I know that I have my own strengths and weaknesses, but I know anyone else coming in the door has their strengths and weaknesses too. So, I just felt it was a mistake when they came in and assumed they were “the gift to the world.” And it doesn’t mean that is always bad thing. It’s just my personal opinion that I find it to be very difficult to partner, move forward,  and grow the company with those types of personalities.

K: Looking back now, would you do anything differently over those 10 years?

M: I tend not to be a person that worries about mistakes or things that you did wrong because I find that to be counterproductive. When things don’t happen properly, I tend to focus more on what can you learn from that opportunity and don’t beat yourself up for the past. One of the things that I would have done differently is I would have focused on international growth.  I’m not going to beat myself up for it, but I think we missed the ball on developing the brand internationally.

K: Are there any other lessons that you took away from the experience?

M: I would recommend to anyone growing a business that you have to understand what your strengths are, what your weaknesses are and let your ego stay at the door. You have to understand what you’re good at and what you’re not good at and go get outside help. The goal shouldn’t be your own ego, the goal should be growing your organization as fast as you can from a revenue standpoint, cultural standpoint, social standpoint,  and a  profit standpoint, and if there’s a weakness, go get help and don’t hold back.

K: Thank you very much.

M: Great, thank you for the opportunity.

04Dec/12

Kenexa Acquired by IBM for $1.3 Billion

Accelerates Social Business for Workforce Transformation

ARMONK, N.Y. – 4 December 2012 . . . IBM (NYSE: IBM) today announced the closing of its acquisition of Kenexa. Kenexa bolsters IBM’s leadership in helping clients embrace social business capabilities while gaining actionable insights from the enormous streams of information generated from social networks every day. The net purchase price is approximately $1.3 billion.

Kenexa, a leading provider of recruiting and talent management solutions, brings a unique combination of Cloud-based technology and consulting services that integrates both people and processes, providing solutions to engage a smarter, more effective workforce across their most critical business functions.

Kenexa complements IBM’s strategy of bringing relevant data and expertise into the hands of business leaders within every functional department, from sales and marketing to product development and human resources.

The adoption of social business technology is further accelerating the growth of big data and the need for analytics in the enterprise. A recent global IBM study revealed that 57 percent of surveyed CEOs identified becoming a social business as a top priority and more than 73 percent are making significant investments to capture and draw insights from available data.

The survey also reveals that 70 percent of CEOs cite human capital as the single biggest contributor to sustained economic value. The combined strengths of IBM and Kenexa provide organizations with unique capabilities that allow them to increase workforce efficiencies and gain insight from their business information.

“By creating a smarter workforce, employees can drive innovation to bring products and services to market faster, resolve problems before they arise to improve customer service, and increase sales by building new skills — linking the right experts to the right clients,” said Alistair Rennie, general manager, social business, IBM. “The combination of Kenexa’s world-class human capital management solutions and IBM’s social business and analytics leadership uniquely positions IBM to help clients generate real returns from their social business investments, while helping them to be more competitive in their markets.”

Today, Kenexa is an industry leader in cloud-based software and recruiting process outsourcing (RPO.)  Kenexa supports more than 8,900 customers across a variety of industries, including financial services, pharmaceuticals, retail and consumer, including more than half of the Fortune 500.

Since IBM announced its intent to acquire Kenexa in August, Kenexa has seen continued momentum with customers around the globe. Kenexa has signed sizeable, multiyear contracts with several major companies, and recently announced that Cargill, an international producer and marketer of food, agricultural, financial and industrial products and services, has signed a three-year agreement to use Kenexa to implement, develop and oversee an employee engagement survey to its entire workforce of 140,000 employees around the world.

The Kenexa acquisition complements IBM’s social business and HR business services leadership. For three consecutive years, IDC ranked IBM number one in enterprise social software. Today, more than 60 percent of Fortune 100 companies have licensed IBM’s solutions for social business.

Through its combination of social software, analytics, content management, IBM’s maturity and strength in business process services and deep industry expertise, IBM is uniquely positioned to help organizations capture information, create insights and generate interactions that translate into real business value.

At IBM’s Connect conference, the premier social business client event in January 2013, IBM will detail how it will help clients use social technology, analytics, talent management, and human insights to attract and retain the right talent, to enable employee skills for the greatest impact, and to align activities to improve company performance – leading to real, positive business outcomes and competitive advantage. Register to attend Connect 2013 at www.ibm.com/connect.

With the closing of this acquisition approximately 2,800 Kenexa employees in 21 countries join IBM.  Consistent with its strategy, IBM will continue to support Kenexa clients and enhance Kenexa technologies while allowing these organizations to take advantage of the broader IBM portfolio.

About IBM
For more information visit www.ibm.com/social-business.

Contact:
Karen Lilla
IBM Communications
1-617-693-8115
karen_lilla@us.ibm.com

 

SOURCE

 

10Sep/12

7 Questions Every CEO Should Ask

You may have been wondering about private equity. But is it right for your company?

 

When should I look for private equity?

If your company is at a turning point, chances are you should be looking into private equity. Often it’s because you are growing faster than the bank can fund, a new acquisition opportunity becomes available, or you or your partners need some meaningful liquidity for retirement or estate planning purposes. It is best if you are always looking ahead at least a year or two and don’t wait for an issue to erupt to start looking for financing alternatives. Companies that aren’t doing this can easily grow beyond their management infrastructure, get stretched operationally and then “plateau” or even decline. Owners are then faced with the decision to either sell outright or seek capital in a rushed timetable. The right investment partner can help you meet personal financial goals as well as finance an improved competitive position, attract management talent, and build a stronger balance sheet.

What do I need to get ready?

The quality of your financial records is a major investment criteria so it’s important that you have audited or reviewed statements for the last few years. In addition, you are going to need a business plan detailing your company’s products, customers, management, and also showing a good understanding of your market and competitors. Most business plans also outline the financial projections and the underlying assumptions over a three to five year horizon. Since most middle market companies have limited resources to produce these items, outside resources are often brought in to assist and this process can take more time than owners expect.

Should I use an investment banker?

The right one can be helpful and the wrong one can be worse than useless. Most business owners utilize a wide range of advisors, including lawyers, accountants, consultants, as well as investment bankers to assist in a potential transaction. Investment bankers can be instrumental in leveraging your time by managing an offering process. They can give you an objective assessment of value and structure. To maximize price, investments bankers sometimes run an auction with a large universe of potential buyers. While this process may result in maximizing the price, it can also take more time to accomplish and carry some risk. Many companies have also had success in initiating a limited dialogue directly with one or more likely investors, allowing them to maintain strict confidentiality while “testing the market” on pricing and terms. Sometimes this can quickly lead to an agreement or, at least, provide owners with fresh ideas.

A word of caution should you choose to utilize an investment banker: prior to engagement, verify that your advisor has a referenceable track record in the industry and type of transaction contemplated. Advisors can often pitch deals without relevant credentials, which may end up damaging your company’s prospects and put any transaction at risk.

 

Do I have to give up control?

No, contrary to the fears of many owners, change of control is not required. Most investors will expect to participate on a Board of Directors with qualified processionals  including management. Investors will expect some degree of influence on the Board depending on their level of ownership but major decisions are typically by consensus. The level of investor influence depends upon the investment structure, ownership, amount of capital, and the needs of your business. Each private equity firm has differing requirements, which makes finding a cultural fit vital when selecting a private capital partner.

How do I make sure I pick the right partner?

Communication is critical when you are selecting your partner. Before signing a term sheet, make sure you have had several conversations with your prospective partner to align expectations. The investment timeframe, financial projections, Board composition, and Management compensation including bonus and option plans are all topics that should be well understood and agreed upon by both parties. Thoroughly vetting these topics early on will not only minimize future issues, but it will also give you insight about your potential investors. As the discussions unfold, your instincts will generally guide you to the right choice. Consult with the investor’s references to get a sense of their style and culture. Also, don’t be afraid to ask for references on companies that have failed or struggled to perform in order to give you insight on how the investors will behave in difficult situations.

What strings are attached to a private equity investment?

Generally, investors will have one or more seats on the Board and must be consulted on major decisions, such as a sale or merger.  As a practical matter, management runs the company’s operations and the Board provides strategic oversight. Most decisions thereafter are discussed in a small group at the Board level and are almost always by consensus. The Board of Directors usually convenes quarterly to review the status of the company and any major decisions.  Financial reporting is required monthly, quarterly, and annually to keep all parties informed of status of the company and its progress towards its budget and strategic goals.

What benefits/value should I expect after closing?

A good private equity partner should bring real value to the Board. With experience and insight in your industry, they are a good sounding board for new ideas and offer a fresh perspective on key decisions. Since they share in the investment returns in your company, they are committed to bringing their capital, talent, and network to augment growth. A good partner can provide a wide network of contacts to source M&A prospects, key executive hires, or new customer introductions. A high quality private equity firm will also have a track record with lenders which can substantially improve the pricing and terms of bank debt to finance a company’s working capital growth.

23Jul/12

Leading Snack Food Distributor Liberty Distribution Completes Sale to Vistar

(Chandler, AZ) In June 2012, Liberty Distribution completed its sale to Vistar, a division of Performance Food Group.  Founded in 1998 by Jim Schweikert, Liberty Distribution grew to become the leading snack food distributor to non-food retailers.  G. Kevin Fechtmeyer, Managing Partner of Cave Creek Capital, noted, “This was a tremendously successful investment due to the energy and teamwork of Liberty’s management which helped grow its revenues by nearly 400% since our investment in 2008.  This Transaction generated a return of 5.5 times our initial investment.

Patrick Hagerty, President and CEO of Vistar noted, “We have long admired Liberty, they pioneered the availability of candy and snacks to nonperishable retailers. This category is now common place in retail industries where it was virtually unknown just 15 years ago. We are excited to be adding the entrepreneurial spirit of Liberty’s management team and we are confident that they will be instrumental in helping Vistar meet its long term growth strategy.”

Cave Creek Capital Contact:
Jourdin Lambright, Marketing Associate
Phone: (480) 478-6960
jlambright@cavecreekcapital.com

13Jul/12

Bastech Named One of 50 Fastest Growing Companies

Bastech, (Jacksonville, FL) a leading provider of chemical solutions to the paper, pulp and mining industries, was named as one of the 50 fastest growing companies by the Jacksonville Business Journal, as well as one of the top 10 fastest growing companies in total revenues in the region.  Bastech was ranked 6th in total revenue growth and 24th in percentage revenue growth, averaging over 54% annually over the last three years.

Read full story at the Jacksonville Business Journal 

Cave Creek Capital Contact:
Jourdin Lambright, Marketing Associate
Phone: (480) 478-6960
jlambright@cavecreekcapital.com