For months the rumor mill was busy with tales of an impending sale of Bear Creek Corp., parent company of food gifts cataloger/retailer Harry and David and horticulture mailer Jackson & Perkins. Through it all, Bear Creek’s parent, Yamanouchi Pharmaceutical Co., remained silent. But on April 2, the Japanese firm confirmed that it had sold the $596.2 million Bear Creek Corp. to private equity investor Wasserstein & Co. for $260 million. The deal is expected to close by the end of June.
Yamanouchi hasn’t discussed the deal, nor, as of press time, were representatives from Bear Creek or Wasserstein willing or available to talk. But that didn’t stop industry observers from speculating on the whys and what-nexts of the transaction.
Seeking motivations
Yamanouchi’s motive for selling Bear Creek is easy to understand. The company “probably just realized Bear Creek wasn’t supporting its key corporate strategy — as a drug and pharmaceutical company,” says Todd Barr, vice president of retail and direct marketing services for Atlanta-based consulting firm Kurt Salmon Associates. “There really aren’t any similar divisions of ownership that have any commonality of what Bear Creek is trying to do. So Yamanouchi probably just said, Enough’s enough.”
The cataloger’s less-than-stellar growth during the past few years no doubt factored into the decision. At $596.2 million for the year ended March 31, Bear Creek’s revenue was down 3% from $615.7 million for fiscal 2002. On the plus side, operating profit increased 44%, to $33.8 million from $23.4 million.
Compared with some of Wasserstein & Co.’s other investments, Bear Creek’s profit isn’t huge. Based in New York and San Francisco, Wasserstein has more than $2 billion under management. Its holdings include financial publication The Daily Deal and American Lawyer Media; other holdings and investments, past and present, include cosmetics brand Maybelline, kitchenware manufacturer All-Clad Cookware, and software developer Adexa. Its venture capital investment team has completed more than 30 investments in a variety of industry sectors.
“I’m surprised that a company as big as Wasserstein is involved in this industry,” says Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander.
Battle does note, though, that since the debt markets have loosened in the past 12-18 months, the private equity players are now able to better compete with strategic buyers.“The private equity guys are looking at companies in the $50 million-$150 million range that are better positioned brands in the industry,” Battle says.
Lee Helman, senior vice president at New York-based Gruppo, Levey & Co., which advised Wasserstein in the deal, says that the firm was attracted to Bear Creek’s strong brand name.
And having shelled out nearly eight times earnings for Bear Creek, “it appears that Wasserstein & Co. paid in the top range of deals in today’s marketplace,” comments Roland DeSilva, managing partner of New York-based investment banking firm DeSilva & Phillips. “But clearly Wasserstein sees a lot of value and a lot of potential upside in the deal.”
After the deal
Wasserstein will likely flip Bear Creek within a few years — investment firms generally hold on to companies for four to six years, during which time they work to improve the value, before selling them at what is hopefully a profit. But Barr, for one, thinks Wasserstein might try to unload Jackson & Perkins sooner to concentrate on building Harry and David’s retail business. According to one source who spoke on condition of anonymity, Jackson & Perkins is more capital intensive than Harry and David, primarily because of the nature of the horticultural industry. In fact, the same source says that Jackson & Perkins business may be why Yamanouchi didn’t get its target price of $300 million-$350 million for Bear Creek.
As for Harry and David’s 147-store retail division, Barr thinks that the stores’ offerings are too seasonal. “So they need to turn those stores into something people would visit throughout the year, rather than during the last three months of the year.”
Barr also conjectures that Wasserstein might look to expand Harry and David into the wholesale market. “Selling its products in supermarkets on an exclusivity basis could work,” he says, “much as it has for Jackson & Perkins in stores such as Home Depot and Lowe’s.”
— Additional reporting by Paul Miller
Yamanouchi Sells Three More
Pleasanton, CA-based Yamanouchi Consumer also sold its three nutritional and household products direct marketing operations — Shaklee Corp. and Inobys in the U.S. and Shaklee Japan KK — to a partnership formed by U.S. investment funds Activated Holdings and RHJ Industrial Partners for $310 million. RHJ is an affiliate of Ripplewood Holdings, an investor in New York-based personalized products cataloger Lillian Vernon Corp.