Yogurt maker Chobani LLC is the kind of company that private equity funds dream of owning.
Launched 13 years ago from a dairy in upstate New York that Kraft Heinz Co. had shut down, the company caught lightning in a bottle – make that a plastic cup – by rolling out what’s become America’s favourite Greek yogurt. Over the past year, Chobani founder Hamdi Ulukaya, an immigrant from Turkey with a strong social conscience, went looking for a private equity partner to help expand a business that’s already the second largest player in its sector, behind Danone SA, with $1.5-billion in annual sales in the United States, Mexico and Australia. (Dairy tariffs prevent Chobani from selling its products in Canada.)
Chobani’s suitors were a Who’s Who of big-name money managers. Private equity funds are sitting on an unprecedented $1-trillion-plus of dry powder – cash that must either be invested or returned to backers. These institutions spent months pitching Mr. Ulukaya. The winning bid, announced at the end of June, came from a fund that’s not even a big name in its hometown: the Healthcare of Ontario Pension Plan, or HOOPP. The $77-billion Toronto-based plan has long been overshadowed by larger rivals such as the CPP Investment Board and Ontario Teachers’ Pension Plan.
“In HOOPP, we’ve found a partner that sees the world the way we do,” said Mr. Ulukaya, who is known for hiring refugees and pledging the bulk of his considerable fortune to charity, along with producing fruit-on-the-bottom yogurts. The 45-year-old billionaire said: “I love that heroes like health-care workers are now part of our family and our story.”
Over at HOOPP, which looks after the retirement savings of 339,000 nurses, medical technicians and hospital workers, managing partner Jim Walker said: “Chobani is truly one of those unique companies and investment opportunities that seems to defy all odds: coming out of nowhere, lifting up its communities and driving exceptional long-term value.”
HOOPP purchased a 20-per-cent stake in Chobani, and while the terms are confidential, sources familiar with the transaction say the plan invested $900-million and expects to be involved for at least 14 years, or twice the normal holding period for a private equity fund. It’s the latest example of Canadian pension plans using patient capital and a feel-good brand to win investments that rival funds all covet.
An increasing number of entrepreneurs and management teams are put off by the private equity playbook – buy a business, spend a few years revving up performance, then flip the company and move on to raise the next fund. These business operators are increasingly turning to backers with longer time horizons and, in the case of Canadian pension funds, working-class roots.
When one of Britain’s largest headhunting firms – Alexander Mann Solutions – announced in May that the Ontario Municipal Employees Retirement System, or OMERS, was its new owner, the company highlighted the Canadian fund’s patience and deep pockets.
In announcing the $1.4-billion investment, Alexander Mann CEO Rosaleen Blair said: “OMERS’ partnership approach, its substantial and unconstrained capital base and its experience of supporting businesses organically and through acquisition make it an ideal partner.”
When French engineering company Fives Group unveiled new minority shareholders in December, two Montreal-based funds stepped forward, the Caisse de dépôt et placement du Québec and Public Sector Pension Investment Board, or PSP. Again, the Canadian pension plans were buying while a traditional private equity firm was selling. Fives CEO Frédéric Sanchez said: “Their long-term approach to investment, their deep valuable industrial insights and their strategic vision aligned with that of the management team.”
HOOPP’s investment in Chobani is a textbook example of the difference between the traditional private equity playbook and a pension plan’s approach. The yogurt maker took a US$750-million loan in 2014 from TPG Capital, a Texas-based fund. That loan came with equity warrants that, if converted, would have given TPG up to a 35-per-cent stake in Chobani.
Rather than see existing owners diluted, Chobani used cash from HOOPP to buy out TPG. The yogurt maker looked to TD Securities Inc. and Centerview Partners LLC as its financial advisers. In the new ownership scheme, Chobani employees have an opportunity to acquire an additional 10 per cent of the company over time, which would bring their total ownership to 90 per cent. Going forward, Chobani’s marketing team plans to make yogurt more than just part of a nutritious breakfast, by serving it up as a snack and a key ingredient in your dinner. HOOPP’s Mr. Walker said: “We think Chobani’s best days are yet to come, both in the U.S. and beyond, and we’re thrilled to join them in their next phase of growth.”
Andrew Willis