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Oaktree makes 17x investment with AdvancePierre IPO

Good things come to those who wait. Just ask Oaktree Capital Management, which is making 17x its money with AdvancePierre Foods Holding Inc.’s IPO.

The Cincinnati company produces more than 600 million prepared sandwiches a year along with fully cooked burgers for food service, retail and schools.

AdvancePierre went public July 15 after pricing 11.1 million shares at $21 each. A week later the stock was up more than 12 percent, closing Friday at $23.60.

“We’re very pleased with the outcome of the transaction and are very excited about the company, our residual stake and continuing to participate in the upside of this stock,” Matt Wilson, an Oaktree managing director and a co-portfolio manager within the global principal group.

From Chapter 11 to return of 17x 

Oaktree, Los Angeles, is known for investing in the distressed debt of troubled companies. In July 2008, Pierre Foods was owned by Madison Dearborn Partners when it filed for Chapter 11 bankruptcy protection, Buyouts reported. Oaktree began buying up Pierre’s bonds for pennies on the dollar, as well as nearly all its junk bonds and bank loans, the Wall Street Journal reported.

Oaktree provided about $100 million for the deal, a source familiar with the situation said. The firm used Oaktree Principal Opportunities Funds IV to invest in Pierre. That fund closed at $3.3 billion in November 2006, Buyouts reported.

Oaktree’s debt was converted into equity with the Pierre Foods reorganization, the WSJ said. Pierre emerged from bankruptcy in December 2008 with Oaktree in control.

A year later Oaktree recouped its investment with a Pierre dividend, the source said. It’s unclear how big the 2009 distribution was, but it was at least $100 million.

In 2010, Oaktree combined Pierre Foods with Advance Foods to form AdvancePierre. Oaktree didn’t invest more capital; the transaction was funded with third-party debt, the person said.

The company paid out a second dividend in 2010, which Moody’s Investors Service pegged at $106 million. Oaktree doubled its money with the second dividend, the source said.

A third payout, which Moody’s said was about $185 million, came in 2012. The third distribution meant Oaktree had made more than 3x its invested capital, the source said.

High leverage

AdvancePierre completed three add-ons under Oaktree’s ownership. The company used debt to fund the acquisitions, the source said. The first came in June 2011 when it bought Barber Foods, the Portland, Maine, maker and distributor of stuffed chicken breasts. Two more acquisitions — Better Bakery and Landshire Inc —followed in 2015.

AdvancePierre said in an SEC filing that its “high level of indebtedness” could affect its ability to raise more capital or how it reacts to changes in the economy or industry. The company had $1.3 billion in loans outstanding as of June 2, a regulatory filing said.

AdvancePierre expects to use the money it receives from the IPO, about $209.5 million, to pay down that debt, the filing said. The company currently has $26.9 million cash on its balance sheet, which when factored in reduces AdvancePierre’s debt-to-EBITDA multiple to about 4x, the source said. “That’s not highly leveraged,” the source said.

Oaktree, departing from usual PE practice, sold stock in the AdvancePierre IPO. The firm offloaded about 9 million shares, making about $188.2 million (at $21 a share). Oaktree still owns 44.9 million shares, or 57.18 percent, which is worth $1.06 billion (at $23.60 a share).

Including the three dividends, the sale of shares in the IPO and its remaining stake, Oaktree has made about 16.4x its money.

The firm also received about eight years of annual management fees from AdvancePierre, the source said. This pushes the return to roughly 17x, including paper gains, the person said.

John Simons, president and CEO of AdvancePierre, said in a statement that when Oaktree invested in 2008, it saw a “great company with a poor balance sheet.

“Thanks to Oaktree’s resources, tremendous partnership and support during the past eight years, AdvancePierre finds itself in the enviable position to grow both organically and through opportunistic, disciplined tuck-in acquisitions,” Simons said.

Action Item: Contact AdvancePierre: +1 800-317-2333

Photo courtesy ©iStock/drewhadley

Correction: This article has been updated to clarify that AdvancePierre won’t be using the $26.9 million cash on its balance sheet to pay down debt. The figure is used to determine the company’s debt-to-equity multiple.