March 7, 2008

San Francisco Business Times


The private equity market generally may be in low gear these days, but not so for San Francisco-based TSG Consumers Partners LP. (“TSG”) The 22-year-old private equity firm, in the words of founder and CEO Charles “Chuck” Esserman, has never been busier. In fact, he notes, in recent weeks TSG closed two investments, including a substantial investment in a major consumer products company with an enterprise value of approximately $1 billion.

“We have yet to be impacted by the economic environment. We have received great support from the lending community based upon our track record and conservative use of debt,” comments Esserman. “Moreover, we anticipate revenue growth for our portfolio companies in excess of 25 percent for the first quarter of 2008.”

Hadley Mullin, a TSG Managing Director, points out as well that what helps differentiate the firm is its focus on the branded consumer sector. By focusing on just one sector, TSG is able to build broad relationships in the industry, enabling it to source and close transactions with the most promising emerging brands, as well as add substantial valueadded services to its companies post-close. Some of TSG’s recent announced investments include:

•	CytoSport of Benicia, Ca, a high-growth sports nutrition company selling brands such as Muscle Milk, Cytomax and Mighty Milk.
•	Yard House Restaurants LLC, of Irvine, CA, a rapidly growing chain whose units feature a broad menu and 100 different tap beers.
•	Radio Systems Corporation, which sells innovative pet care supplies, including Invisible Fence and Pet Safe products.

One key to TSG’s success that has enabled the firm to average striking annual returns of approximately 60% since being founded in 1987 is the fact that its emphasis, unlike so many other private equity investment firms, is on growing businesses. The market value of VitaminWater, Smart Balance and PureOlogy, for example, alone increased over $2 billion from the time of TSG’s investment in these companies to their sale several years later as a result of dramatic growth in each case. More than one executive of its portfolio companies has marveled that TSG partners encourage them to spend money to expand distribution and enhance their brands with the goal of building value.

“We do extensive primary and secondary research before making our investments, seeking out companies that have promising opportunities, and that can benefit from our focused approach,” says TSG Managing Director Jamie O’Hara. “So why stifle them? They have imaginative, entrepreneurial leadership that positioned them well, and what we can and do provide is our know-how on how to broaden their opportunities and scale their businesses.”

Case in point: Smashbox, a marketer of premium priced cosmetic products founded by Dean and Davis Factor, great grandsons of famous Max Factor, who view the folks at TSG as strategic and operational consultants more than just investors. For example, before investing in Smashbox, TSG drafted a detailed strategic plan that included taking the brand into new channels of distribution, significantly increasing advertising spending, and streamlining the product line. The strategic planning process bore immediate fruit. In the two years since TSG’s investment, Smashbox has more than doubled its sales and increased EBITDA four-fold.

Last spring TSG launched a new investment fund, and currently manages approximately $1.5 billion in equity. However, in its traditional low-key, conservative manner, TSG opted to turn down over $1 billion in additional capital from prospective investors.