NEW YORK (Reuters) -
Thomas H. Lee Partners said it agreed to buy food processor and distributor Michael Foods Inc. for about $1.05 billion, the latest food industry leveraged buyout by the Boston private equity firm.
Thomas Lee, a $12 billion fund best known for developing and selling Snapple Beverage and General Nutrition Centers, will buy Michael Foods in partnership with management from buyout firms Vestar Capital Partners and Goldner Hawn Johnson & Morrison, and the founding Michael family, the companies said.
Minnetonka, Minn.-based Michael Foods processes and distributes foodservice and retail brands Simply Potatoes, Better 'N Eggs, Diner's Choice and others, generating 2002 net sales of more than $1.1 billion.
Thomas Lee will pay a multiple of about seven times earnings before tax and other items (EBITDA), a "very attractive price" for a company with "outstanding" cash flow, said Tony DiNovi, a Thomas Lee managing director.
"Michael Foods has a great management team, a solid strategy and good growth markets," said DiNovi. "We don't plan to change it that much."
The deal comes as the quantity of large buyouts is picking up after a several-year hiatus, boosting hopes for a cash-rich but deal-starved buyout industry. In recent months, French water treatment company Ondeo Nalco, TRW Automotive and publisher Houghton Mifflin were set to be sold to private equity buyers, each for well over $1 billion.
"This is a sort of LBO [leveraged buyout] heaven when you can pick up these very large businesses at low multiples," said veteran banker Jimmy Lee Jr., vice chairman of J.P. Morgan Chase & Co., at a recent Private Equity Analyst industry conference. "It's as good as it gets."
Buyout firms like Thomas Lee typically buy companies using cash and leverage, or debt, and sell them in a three-to-seven-year time frame.
Thomas Lee, which closed its latest fund at $6.1 billion in 2001, is viewed as a top performer among LBO firms, fueled by the success of its Snapple deal. It bought the beverage maker in 1992 for $135 million and sold it to Quaker Oats for $1.7 billion in 1994, a stratospheric return by any standard.
Like most private equity firms, Thomas Lee doesn't disclose its returns. But according to the California Public Employees Retirement System, a Thomas Lee investor, its 1996 Fund III posted returns of 32 percent for Calpers. Later fund returns are too early to be "meaningful," Calpers noted.
DiNovi said Thomas Lee agreed to buy the business after a "limited" auction that included mainly private equity bidders. Thomas Lee put up more than $300 million in cash for the company, with the rest funded by a group of banks led by Bank of America (BAC: Research, Estimates), said DiNovi.
The current owners took Michael Foods private in April 2001 for about $800 million, the company said. The sale is expected to be completed by year-end.