New private equity firm VMG Equity Partners has raised $325 million and plans to load up on small Orange County companies.
There’s even a Hollywood link: VMG hopes a tie to Los Angeles-based talent agency The Firm will lead to celebrity endorsements for acquired companies.
VMG plans to acquire small companies that make products for consumers, including clothes, skincare, auto care and household products. The goal is to grow companies and then sell them to larger ones.
“Orange County is a mecca of small companies for consumer branded products,” said Bob Schult, managing director of VMG.
VMG raised money from pension funds, university endowments and investment banks.
A few local companies could be acquired by the end of the year for as much as $80 million, according to Schult.
As many as 60% of the companies it ends up buying could be in the county, he said.
“Trends start here in California,” Schult said. “There’s a history of companies here that have been bought by bigger companies based in New York and Chicago.”
He pointed to Costa Mesa’s Hurley International, bought by Nike Inc. in 2002, as local successes in consumer products.
Schult is one of four VMG partners, which has offices in Irvine and San Francisco.
VMG plans to target companies a little too small to be bought by bigger companies, and likens itself to a research and development team.
Schult is a former chief operating officer of Nestl & #233; USA Inc., where he managed food brands such as Nestl & #233;, Stouffer’s, Hills Brothers, Libby’s, Carnation, Buitoni and Friskies.
Before starting VMG, Schult was managing director for food products at TSG Consumer Products Group, a private equity firm formerly known as the Shansby Group.
Last summer, TSG sold its 30% stake of Energy Brands Inc.’s Glaceau, maker of vitaminwater, to India’s Tata Group for $677 million.
In May, Tata sold its 30% stake for $1.2 billion to Coca-Cola Co. as part of its $4.1 billion buy of Energy Brands.
Fellow partners Scott Elaine Case and Michael Mauze also come from TSG.
David Baram is the fourth partner. He’s chief operating officer and director of The Firm, a talent agency and brand developer. The Firm’s managed Justin Timberlake, Kelly Clarkson, Snoop Dogg and Martin Scorsese.
“Think about how many brands have been developed through entertainment,” Schult said.
Baram led the acquisition and turnaround of shoemaker Pony International for The Firm.
Much of Pony’s success came from endorsements from sports greats Pel & #233;, Dan Marino and Pete Rose. Pony was sold to Santa Barbara’s Global Brand Marketing Inc. in 2003.
Eyeing Skincare Company
One OC company VMG is looking at was inspired by a celebrity’s fondness for its skincare products, Schult said, declining to name the company or star.
Once VMG buys a company, it plans to work with management to improve operations.
“We have no rule book,” Schult said. “Different management teams have different things going for them. We’re not arrogant enough to think we can run their company better.”
About half of the companies VMG is looking at are family businesses, he said.
“These guys are unbelievable,” Schult said. “They’ll take an idea, build on it for 10 years through good times and bad, and in the process learn incredible survival skills.”
He pointed to VMG’s first acquisition, San Francisco-based bag maker Timbuk2 Designs Inc.
Timbuk2 got its start making bags for bicycle messengers and has evolved into making bags for laptops, iPods and other items.
VMG looks to invest about $20 million on average in a company, according to Schult. The company hopes for a return of three times its initial investment in three to seven years, he said.
