The Canada Pension Plan Investment Board is investing $477-million (U.S.) to take a major stake in a U.S. private equity fund that owns prominent brands such as Sunny Delight and Mattress Firm, continuing a trend of investing in aging private equity funds.
CPPIB said Monday that it will invest $477-million to allow investors in the J.W. Childs Equity Partners III fund the option to sell their interests and leave the fund.
Since its inception in 2002, Fund III has made a series of investments in consumer products and retail companies, including purchasing Sunny Delight Beverages Co., which makes Sunny D beverages; Mattress Firm Holdings Corp., which is the largest specialty bedding retailer in the U.S. with 1,000 stores; Esselte, a global manufacturer of office products; and W.S. Packaging Group Inc., which manufactures labels and related products.
The fund was created by equity firm J.W. Childs Associates of Waltham, Mass., which will continue to manage the assets. As part of the deal, Fund III has been dissolved and its assets have been rolled into a new fund called the Winter Street Opportunities Fund. Goldman Sachs is also joining CPPIB in buying out existing unitholders, but did not disclose the amount it is investing.
The investment will give CPPIB a 40-per-cent stake in the new Winter Street fund.
J.W. Childs Associates was founded in 1995 by John W. Childs and has launched three funds that raised a total of $3.1-billion, including $1.75-billion for Fund III.
André Bourbonnais, senior vice-president of private investments at CPPIB, said CPPIB did not previously own a stake in Fund III, but has developed a specialty in investing in the "secondary" private equity market.
The pension fund has done two prior buyout deals involving older private equity funds that have faced unrest from original unitholders who have been waiting for many years to realize on their investments. Many private equity funds saw their investment or growth plans delayed during the financial crisis starting in 2008 and have fallen behind schedule for realizing gains.
Mr. Bourbonnais private equity funds have the option to sell some of their investments to provide liquidity for unitholders as funds comes toward the end of their lives, but J.W. Childs believed its portfolio companies could benefit from more time to grow in value.
"The [general partner] sees more runway for those companies, and thinks that there is better return to be obtained if they keep those companies a little bit longer," he said in an interview Monday.
"Those funds are usually at the end of their investment period, the end of their lives. They are providing an option for those limited partners who are more patient to roll over, but they are also conscious that some of the limited partners may want liquidity and not wait for an extension of the fund to realize further value."
As part of the new deal, CPPIB also agreed to provide a further $119-million as the anchor investor to help launch the new J.W. Childs Equity Partners IV, which will be the first new private equity fund launched since Fund III in 2002.
Mr. Bourbonnais said Fund IV will continue to invest in retail and consumer products companies, which is an area of expertise for J.W. Childs Associates.
"We feel that on the four major elements that we're looking into – the team, the alignment, the strategy and the performance – we feel that team really meets out expectations, and that's why we committed to that new fund," Mr. Bourbonnais said.
J.W. Childs initially announced it would launch Fund IV in 2006, but reports said it withdrew the plan in 2007 because of slow interest from large institutional investors in the lead-up to the financial crisis.
Fund III previously held a stake in U.S. specialty retailer Brookstone, which has 242 stores selling high-end gadgets, but the retailer filed for bankruptcy protection earlier this month as part of a deal to complete a sale of the company to Spencer Spirit Holdings Inc.
Brookstone is now listed as a former investment on the website of J.W. Childs Associates.