The return of J.W. Childs?December 2, 2010: 10:50 AM ET
Boston-based private equity firm J.W. Childs Associates last Thursday announced that it had agreed to sell its majority stake in Advantage Sales & Marketing to Apax Partners. It came just days after Childs priced a $125 million SPAC (i.e., blank check acquisition company), which is designed to acquire a consumer product or retail business in North America.
Can you remember the last time that J.W. Childs made two headlines within the same month, let alone the same week? Hell, within the same year?
Not too long ago, Childs was one of the nation's busiest middle-market buyout firms. It had over $3 billion in capital under management, including a $1.86 billion vehicle raised in 2002. Portfolio companies included such well-known brands as Brookstone, NutraSweet and Meow Mix. In fact, I remember watching a buyout panel in 2004 (I think), in which a Childs partner was seated in between someone from Blackstone and someone from THL Partners (plus Peter Dolan of Harvard Management, who should be required to do at least a dozen conference panels per year).
But then it all seemed to fall apart. The firm attempted to raise $2.5 billion for a fourth fund in late 2006, only to be rebuffed by liquidity-hungry limited partners. It then began losing key staffers – including firm president Dana Schmaltz and co-founder Steven Segal -- and figured that a SPAC could help it stay in the de novo deal-making game. Like with the private fund, investors had no interest. Childs couldn't price the offering, and appeared to be on its way to permanent zombie-hood (as if there is another kind).
To be clear, I'm not saying that Childs is back. Instead, I'm saying that there is a glimmer of life.
The Advantage sale is a big win – nearly a 3x return from a deal whose total value (including debt) was $1.05 billion – and the SPAC means that Childs can once again consider new deal-flow beyond existing portfolio add-ons.
Adam Suttin, a co-founding partner at Childs, tells me that the revived SPAC came at the suggestion of Citigroup, which pitched a more streamlined process than last time out. He doesn't quite agree that the effort is a mildly-desperate attempt to update the firm's track record – more opportunistic, he argues -- but does acknowledge that there is still hope of raising a new "traditional" PE fund within the next couple of years.
He also sketched out the fund a bit: It would be smaller than the $1.86 billion raised for Fund III (which included $1.75b of outside money, plus $115m of GP commit), and the firm's management structure would flatten out. Specifically, chairman and CEO John Childs would transition into a partner role.
I always like an underdog, so will be keeping tabs on this one…