A Boutique Life: 6Pacific Deals with Crowded Market

The recession was kind to banker John Barrymore. The recovery has been tougher.

Barrymore, former head of the food and beverage group at BMO Capital Markets, co-founded 6Pacific Partners just as Wall Street was imploding. The goal was to provide M&A advisory services and equity capital (between $1m-$5m) to companies in the food, beverage, nutrition and consumer space. And there was plenty of work.

“When we started there weren’t many other boutiques, because people were making so much money at big banks,” Barrymore explained. “[Plus], no one has an advisory business focused on large consumer companies combined with an equity vehicle focused on small companies.”

Notable 6Pacific deals included Overhill Farms inking a sales and distribution agreement with McDonald’s French fries supplier J.R. Simplot Co.

Unfortunately for Barrymore, other investment bankers had the same idea and launched their own boutiques. Now, 6Pacific is seeing more competition as the broad market has rebounded. There are many more rival boutiques to contend with — Intrepid Investment Banking, from ex-Barrington execs, just opened up just down the street from 6Pacific — and investment banks are taking back clients. “We’re almost sad to see the recession go. All of the banks came back so strong and they’re now formidable competitors again,” he says.

There also is increasing interest in food, restaurants and consumer deals. The Carlyle  just agreed to pay $3.8 billion for NBTY Inc., the maker of Solgar vitamins. In June, Oak Hill Capital completed its $570 million buy of Dave & Buster’s Inc. from Wellspring Captial. Lee Equity Partners also closed its $180 million buy of Papa Murphy’s International, a pizza restaurant chain, from Charlesbank Capital Partners in May.

The last few years have been tough for restaurants but those with value oriented concepts, like pizza or upscale burgers, are seeing growth. Still valuations are all over the place. The best companies, like Papa Murphy’s, may sell for as much as 10x EBITDA, while the underperformers may go for as low as 5x. Dave & Buster’s went for 7x EBITDA. However, Dave & Buster’s is more an entertainment company and the Oak Hill transaction was the restaurant chain’s second attempt to sell itself.

Despite all the activity, 6Pacific has yet to announce a transaction this year. This is in contrast to 2009 when 6Pacific advised on four deals, including Simplot. The environment for consumer products appeared to be picking up in first quarter but this was largely due to a one-time increase in retail inventory levels. Retailers, Barrymore says, carried more inventory earlier this year after cutting back too much in 2009. This created a false sense of momentum, he says.

6Pacific has also seen several private equity deals fall apart at the last minute, while the firm’s advisory assignments are taking much longer, Barrymore says. “The problem is the lack of clarity in the business outlook,” he says.

Barrymore doesn’t believe the rise in capital gains taxes in 2011 will spur business owners to sell this year. “We do, however, anticipate higher levels of M&A activity in the second half as large companies deploy their cash on hand and realize the substantial benefits of scale in this market,” he says.

As a sidenote, 6Pacific stands for 6:00 a.m. Pacific time, which Barrymore says is the best time of day in L.A. to conduct business globally.