Arbor Investments Gobbles up Bakery Cos

Oct. 1, 2019

Four years after selling Gold Standard Baking, Arbor Investments is again reuniting with the Caparos brothers to buy another baker.

Arbor said Tuesday, Oct. 1 that it recapitalized the Bakery Cos, taking a majority stake. Financial terms weren't announced. Founders Cordia and Tom Harrington are retaining a stake, while the Caparos brothers are also investing.

Cordia Harrington, known as "the bun lady," was previously an owner and operator of McDonald's franchises. She launched the Bakery Cos in 1996. The Nashville company makes buns, English muffins, biscuits and artisan bread. It employs more than 500 people. The company produced nearly $100 million in revenue in 2016, Nashville Business Journal reported. Bakery Cos makes more than seven million of baked goods daily, for customers that include Five Guys, Pepperidge Farms and McDonalds.

Harrington, in an interview with Buyouts, said she felt "honored, privileged and excited by the deal."

"I believe with [Arbor] as our partner we will become the best in the industry," she said. "We hope to grow 10-fold over the next five to seven years."

Harrington said she's known of Greg Purcell, Arbor's CEO, since he co-founded the private equity firm in 1998. Kevin Dunn, an Arbor operating partner, is the ex-Midwest president of McDonald's. It was Dunn who selected Harrington to be a McDonald's franchise owner and operator, she said.

When asked why she sold to private equity, Harrington said Arbor is different from other buyout shops. “They don't go in and try to cut and pinch pennies," she said. "They go in and say, 'You have a great leadership team and here's money to grow."'

Arbor has ordered $25 million in new equipment for Bakery Cos, a source said.

Harrington hashed out a deal with Arbor executives during a dinner at an American Baking Association event in March. The letter of intent was signed two months ago. Bakery Cos then hired Tim Alexander of Harris Williams to handle the closing.

"We dreamed together 67 days ago," she said.

10th bakery deal

Purcell said Harrington is "one of the most prolific entrepreneurs in the U.S." He declined to comment on how much Arbor invested. The Chicago buyout shop focuses on middle market companies in the food, beverage and related industries. It typically invests from $100 million to $200 million equity per deal.

Arbor has invested in more than 70 food companies but has a strong background with bakeries. It invested in nine other baking companies before Bakery Cos. This includes Rise Baking, New French Bakery, Best Maid Cookie Co, Hudson Baking, South Coast Baking, Choice Foods, Pita Bread Factory, Gold Standard Baking, Mexican Accent and Great Kitchens.

Arbor has also found success with bakeries. In 2008, Arbor bought a majority of Gold Standard Baking, a regional croissant baker, from Yianny Caparos and his brother George. With Arbor's backing, Gold Standard became the nation's biggest producer of low-cost croissants and Danishes. Arbor sold the company in 2015, making 9.4x its money.

Yianny Caparos will become president of the Bakery Cos, while George is chief development officer. Bakery Cos is also expected to begin offering croissants and Danishes, the source said. (The Caparos brother also invested in Rise Baking with Arbor.)

Yianny Caparos said he has known Harrington for decades. "As we enter our third partnership with Arbor, we're eager to continue growing The Bakery Cos., bringing new ideas and innovation to meet the ever-changing needs of our customers," he said in a statement.

Purcell said the bakery sector is fragmented with the middle market lacking a large-scale specialty baker. "Current consumer packaged goods players don't want to invest capital in their own bakery but are looking for someone with expertise," he said

Bakery Cos competes against many smaller, family-owned companies, Purcell said. He pointed to PPC Partners's acquisition of C.H. Guenther & Son Inc, which owns Pioneer Flour Mills as well as the Guenther House restaurant and museum, in 2018. "There is no publicly traded bun company that [Baking Cos] competes against," he said. "There is no one in the private label baking space that is a big scaled player."

The deal for Bakery Cos includes four bakeries located mostly in the southeast, including Nashville, Tennessee, and Norcross, Georgia. Arbor plans to complete two to four acquisitions in the next year that will help take Bakery Cos national, Purcell said. "Ideally, I'd like to put together a national footprint of specialty bakeries that are well capitalized and well invested," he said.

Arbor used its fourth fund, which closed on $765 million in 2016, to invest in Bakery Cos. Fund IV is nearly 70 percent invested, Purcell said. He declined to comment on plans for Fund V.