Tuesday, February 26, 2013

Leveraged Stories | TSG Consumer Partners and Stumptown Coffee Roasters

Here's a nice and short private equity story: TSG Consumer Partners, one of the most well-respected consumer-focused PE firms (they helped grow companies like Vitaminwater and Smart Balance and currently own pretty well-known companies like Rebecca Minkoff, Pop Chips, Muscle Milk/Cytosport, and e.l.f. Cosmetics), bought a majority stake in Portland-based gourmet coffee company Stumptown Coffee Roasters back in May/June 2011 (announcement/closing). 
TSG was actually looking to expand within the gourmet coffee area, and from my talks with people in the firm, they've been looking at many specialty consumer sectors to work on.

It was reported in the New York Times that TSG had picked up a 90% stake in Stumptown with the "goal" of selling it to a larger company down the road. Now, knowing how the firm works, they would only sell to a larger company if the brand reputation their portfolio company (Stumptown in this case) was kept solid and not destroyed. 
(Also, I'm not surprised La Colombe Torrefaction, one of Stumptown's competitors, said this, as its founder Todd Carmichael wrote a scathing piece in Esquire's "Eat Like a Man" blog in May 2011, basically saying Stumptown sold out "to Wall Street." Stumptown's founder Duane Sorenson wrote a note shortly afterwards on the company website, and even TSG's head Alex Panos said that Duane is still calling the shots.)

However, it is definitely worth nothing TSG has done many short-term deals in the past with the goal of helping the companies it owns build its brand. The Portland Business Journal looked at the 2003 acquisition of Harry's Fresh Foods for example. The same article also mentioned that (and this is true) TSG execs even walk along store aisles for investment opportunities!

That same NYT article had mentioned that TSG talked with California-based coffee company Blue Bottle Coffee:

“If you want to grow your business you have to do it somehow, and if you can’t get a loan, you have to sell equity, unless you have a really, really well-off grandpa,” said James Freeman, the owner of Blue Bottle Coffee in Oakland, Calif. He said he’d met with two representatives from TSG in March, but would not say what they discussed.
The bigger story about TSG's acquisition is its plan for selective expansion. They opened two new shows in Brooklyn and added a bottling facility to expand the production of its cold brew coffee. 
Finally, Willamette Week put together a really good breakdown of TSG's desire to go into gourmet coffee. The quote on the social  media "backlash" is pretty funny:

The Internet was rife with conjecture: Stumptown was looking to break into Europe. Stumptown was broke. Stumptown had been bought by McDonald’s. “Did Stumptown just get sold to Vitamin Water? Maybe it’s time to switch to Clive [a small Portland roaster],” Decemberists frontman Colin Meloy tweeted.

So far, it looks like TSG is doing well with Stumptown. Sorenson is still running the show, and they're looking to expand into the right cities. A handful of PE firms are as successful as TSG in building up brands, and that will be one of the key futures of private equity.