VMG Adds $550 Million in Dry Powder
In July private equity investment group VMG Partners announced the close of its fourth fund at $550 million, with another $150 million available in a flex-up vehicle. The capital, said VMG Managing Director Wayne Wu, will be invested in emerging, lower middle market companies producing consumable branded goods.
Wu defined lower middle market companies as ones that generally have revenues between $5 million to $100 million. In terms of VMG’s own check size, he added, there’s no “average” example.
“We have a number of investments that started at an equity investment of well less than $10 million. And we’ve written checks that are much larger than that, but we are certainly very comfortable writing checks less than $10 million with an opportunity to grow to larger checks over time, Wu said.
Like other private equity groups, there are parameters for how much capital VMG can put into one given partner portfolio company. The flex-up vehicle will allow the group to potentially go beyond that threshold with a more streamlined and simplified process. While the $150 million is there if needed, Wu said that VMG may never utilize the capital in the flex-up vehicle and is there to only be used opportunistically.VMG’s portfolio strategy remains to invest in emerging, entrepreneurial brands. However, said Wu, the group sometimes wants to continue to support a brand they have already invested in or a brand that simply sees extraordinary growth at a young age.
“If you think about this in the context of a train ride, we’ve known [some brands] since the first stop on a train ride and sometimes we wind up investing at the second stop because that’s when it made sense for everybody,” Wu said. “But for some brands, they could be going along on that train ride for a very long time without a stop, and might have just gotten there very quickly, and we end up investing a bit further down the path.”
VMG’s Fund Three raised $500 million and still has not been fully deployed, Wu said. The group has no specific deadline for switching to capital from Fund Four.VMG has been in the business of investing in branded consumable goods, including food and beverage, personal care, beauty, pet foods and pet treats, wellness supplements and alcoholic beverages, for over a decade. Its 20-plus investments have included food and beverage companies such as Spindrift, Humm Kombucha, Justin’s, Perfect Bar, Vermont Smoke and Cure, Health Warrior, Sonoma Brands and Quest Nutrition.
First Beverage Closes $64 Million Second Fund
First Beverage Ventures, the private equity arm of advising and consulting firm First Beverage Group, has closed its second fund at a total of $64 million, according to paperwork filed with the U.S. Securities and Exchange Commission.
Founded in 2013, First Beverage has made strategic investments in brands such as Health-Ade Kombucha, ionized alkaline water Essentia, and tabletop cold-pressed juice machine Juicero. Other portfolio brands include Purity Organic, Q Drinks and Project Juice.
First Beverage CEO Bill Anderson told BevNET that the addition of new capital as well as new team members and investors would allow the firm to provide a broader range of insights from within and outside the beverage industry.
“What this provides us is the right amount of committed capital, combined with other partner capital, to support our strategy of investing between $5 million and $15 million in innovative, high-growth beverage companies,” he said. “Our ability to bring a number of long-standing beverage executives and their expertise to our portfolio companies, and really focus in on the lessons we learned from multiple different beverage segments, I think, is an enormous advantage for us.”
Over the past year, the company has assembled a new leadership team that includes managing partner Kyle Wheeler, who also heads the firm’s investment activities, and managing director Kristen Bareuther.
Former managing director Tom First left the company to join Castanea Partners last July. Bob Nakasone, a former vice president of sales at probiotic beverage maker KeVita, was hired as his replacement in January.
While the group has advised craft beer companies on financing and acquisition deals in the past, the first fund focused on non-alcoholic opportunities. The second fund, however, has expanded to include alcoholic drinks, specifically, craft spirits. In May, the group, announced its initial investment in the category with Gem&Bolt, a mezcal made with the Mexican medicinal herb damiana.
At the time, Anderson told BevNET, “Our focus has always been on segment analysis, so that we’re certain to be investing in segments that we believe will provide high-growth and high ascension from distributors and retailers and, ultimately, strategic acquirers.”
Stalowir Back in the Beverage Game – New Reed’s CEO
In taking up the reins from the company’s namesake Chris Reed after a tumultuous period, new Reed’s CEO Val Stalowir is seeking to take the craft soda maker back to basics.
Stalowir, a CPG industry veteran who joined Reed’s as CEO and board member on July 5, is the company’s first permanent CEO since Reed announced his resignation and reassignment to the newly created role of Chief Innovation Officer (CIO) in April. Board member Stefan Freeman had been serving as the company’s interim CEO. A former executive at Quaker Oats, The Coca-Cola Company and Yum! Brands, Stalowir was also a partner at private equity fund Emigrant Capital, where he helped lead investments in beverage brands like Boylan Bottling Co., Zola Super Fruits, Robeks and Jolt Cola. His most recent position was as founder and CEO of organic food supplier International Harvest, Inc.
“I have known Val for years, he is a talented leader with deep experience in the beverage industry,” said Reed’s chairman of the board John Bello in a press release. “He brings a clear vision for how to grow Reed’s valuable portfolio of brands balanced with the operational leadership to deliver that growth profitably.”
Stalowir’s appointment at Reed’s comes as the company continues to recover from significant supply chain issues that saw its core brands, Reed’s Ginger Beer and the Virgil’s line of craft sodas, lose shelf space at retailers last year. Reed told BevNET last October that out-of-stock problems led to the company losing between 15 and 20 percent of its distribution, about a quarter of which had been recovered at the time.
In an interview with BevNET, Stalowir explained that, after investing in a new production facility in Los Angeles that went online last year, Reed’s is well-positioned to reduce costs and operate more efficiently moving forward.
“I would say that our current focus is to execute a strategy of reducing our dependence on capital-heavy investments and try to go more asset-light. Whatever resources we have will be focused on Reed’s primarily and then Virgil’s as the secondary effort,” he said, noting that the two core brands as fitting in with the larger trend towards better-for-you carbonated drinks.
In the midst of a supply chain recalibration, gross sales of Reed’s Ginger Beer grew 2 percent last year, while the Virgil’s line was down around 10 percent.
In shifting away from building infrastructure, Stalowir is making good on a long-gestating approach. As a partner at Emigrant Capital, he tried to convince Reed to take a growth capital investment, but ultimately disagreed on how to spend the money; Stalowir wanted to focus on sales and marketing, while Reed was looking to investing in assets such as the production facility.
Now, as CEO, Stalowir hopes to revive that idea, positioning both Reed’s Ginger Beer and Virgil’s as premium products that match consumers desire for clean ingredients and, in the case of Reed’s, a healthy functional boost from real ginger.
“As opposed to other categories which have had brand champions and lots of interest and money flowing into telling the marketing story, there really hasn’t been a true champion in terms of craft soda,” he added. “As we improve the gross margins and overall growth of the company, we will be investing in marketing and sales programs, and we will definitely be looking to pull together more capital to put behind those efforts,” he added.
Stalowir said that he was confident the company’s production problems have passed; along with the Los Angeles plant, Reed’s works with three co-packers on the East Coast, and Stalowir emphasized that even if a line were to go down it would not impact its ability to supply retailers. With production stabilized, he said the next step was to rebuild Reed’s equity with its retail partners.
“Now it’s our job to go back to all the retailers, admit our mistakes, ask for forgiveness, and say to them we are going to prove ourselves by committing to you to perform, to not have any out of stocks, to deliver on time and accurate, and have them hold us to this new standard,” he said. “We are lucky to get back on most of the shelves that we got displaced from, and we are lucky we have those leadership positions [within ginger beer and craft soda categories] to justify coming back in.”
Kill Cliff Gets $7.5 Mil in Ammo
Since its inception in 2011, post-workout recovery drink Kill Cliff has largely built its brand through the fitness channel, positioning itself for the athlete demo in gyms across the country. After securing a major financial boost, the brand is now shifting its focus towards making a play for the mainstream and going deep in the natural channel.
Sunrise Strategic Partners, an investment firm with a focus on healthy and sustainable foods, announced in August that it had acquired a minority ownership stake in Kill Cliff. The deal marks the eighth investment for the young firm and the first beverage brand addition to its portfolio. Sunrise, which began in 2016, has also backed brands such as Perky Jerky, Pure Growth Organic, and Maple Hill Creamery.
Financial terms of the deal were not disclosed, but Sunrise’s investments range between $10 and $25 million in revenue, Hughes said. Kill Cliff was seeking a $10 million raise at the time of the deal, according to Nick McCoy, co-founder and managing director of Whipstitch Capital, which facilitated the investment.
Speaking to BevNET, Sunrise co-founder and CEO Stephen Hughes – who previously founded Boulder Brands and was an early investor in Suja – said the firm had been looking long and hard at the beverage space to find the right company. Kill Cliff, he said, filled a vacuum in the market for a no-sugar, low-calorie recovery drink. Hughes said he saw the brand as a serious competitor to Gatorade and Powerade for the millennial consumer, particularly among athletes as well as mothers looking for healthier sports drinks for their children.
Kill Cliff’s formula, which is all-natural and sweetened with erythritol, hit the right notes for Hughes. But it was the brand’s origin and activism – it was founded by former Navy SEAL Todd Ehrlich with a focus on giving profits back to the Navy SEAL Foundation – that closed the deal.
“We like the product a lot, but then you get to the back story,” Hughes said. “I’ve been building brands for 40 years and I don’t think there’s been a back story I’ve seen that’s more authentic and legitimate.”
According to McCoy, Kill Cliff had “reached the stage” to expand its business, having achieved solid penetration in the fitness and military market, e-commerce sales, and a promising start in the natural channel, along with strong revenue.
“We thought the timing was just perfect for this round,” he said.
Until recently, the bulk of Kill Cliff’s business had been centered around CrossFit gyms, but that has since expanded into Gold’s Gyms, Powerhouse Fitness, Lifetime Fitness, as well as specialty stores such as Vitamin Shoppe, CEO Joe Driscoll told BevNET. Over the past nine months however, most of the company’s distribution gains have been in natural and specialty grocery retailers.
The brand is currently available in the Rocky Mountains and South regions of Whole Foods, with Northern California set to join in the fall. Kill Cliff is currently in talks to add the Pacific Northwest region as well. In the conventional channel, the brand is also expanding into Giant Eagle, Hy-Vee, Kowalski’s Markets, and Coburn’s.
“The retailers like Whole Foods really understand the convergence of natural, healthy beverages,” Driscoll said. “What has historically been ‘sports nutrition’ is helping us lead the charge to develop a whole new category.”
Driscoll, who took the CEO role in March 2016, has also overseen changes to the company’s product line. Earlier this year, Kill Cliff stopped production of its RTD coffee line, which he said was not well suited to gyms and would have fared better if it came out today as the company embraces grocery. However, while there are no immediate plans to revive the coffee offerings, Driscoll said there are new innovations in the pipeline.
Investment firm Mason Wells has acquired Calypso lemonade parent King Juice Company, Inc. for an undisclosed sum, the Milwaukee-based co-packer announced in August.
Mason Wells, along with Calypso Brands President Jeff Outlaw and other members of the management team, will assume ownership of the company from the Kezman and Purpero families. CEO Tim Kezman will remain with the company during a transitional period as a consultant.
In a press release, Outlaw said he is “looking forward to driving growth of the Calypso brand” and said the investment from Mason Wells will give the company the financial backing it needs to strengthen its retail presence and distribution network.
“We are extremely impressed with the workforce at King Juice, the industry leading manufacturing capabilities, and the company’s market position in lemonade through the Calypso line of flavored lemonades,” Ben Holbrook, managing director at Mason Wells, said in the press release.
Kezman and Outlaw did not respond to requests for additional comment. Holbrook declined to offer additional comment.
Also based in Milwaukee, Mason Wells holds approximately $1 billion in assets under management and has invested in several consumer packaged goods companies, with a primary regional focus on the midwest. The firm’s CPG portfolio includes Sturm Foods, party-goods manufacturer Converting, Inc., and Texas-based Eddy Packing, Co. On its website, the firm states it “seeks to partner with proven senior management teams who are willing to invest alongside us.”
King Juice currently sells its Calypso-branded Lemonade, Limeade, and ‘Teamonade’ lines in the U.S. and 20 other countries. King Juice also operates a 123,000 square foot plant in Milwaukee where it provides co-packing and private label services for non-carbonated beverages.
Over the past two years, Calypso has publicly focused on consumer engagement. Launching in 2015 a new website, www.drinkcalypso.com, and in 2016 earned publicity when it broke a Guinness World Record for largest glass of lemonade. In 2013, Kezman told BevNET the company was not concerned with low-sugar, better-for-you industry trends, and said Calypso’s strengths as a brand relied on the drink’s mainstream simplicity.