Summit Partners’ investment in Airborne Health has turned out to be a massive headache. It featured a busted auction, a class-action lawsuit over false health claims and a violation of covenant agreements. Last month the firm finally got out of the mess, quietly selling the nutritional supplement maker back to its founder, former second grade teacher, Victoria Knight-McDowell.
If only it were that simple. In an attempt to start anew, Knight-McDowell today released a commercial trashing the firm’s management of her company (watch video at bottom of post). In it, she explains her buying back of the Airborne:
Three years ago, I sold Airborne to a private equity group and went on to raise my family during this time. However, I became increasingly unhappy with how my company was being managed, and so, in October of 2008, I bought it back.
The commercial leaves out a few big things. First of all, she was both a minority shareholder and board member during Summit’s ownership (according to an FTC filing). Second, the lawsuits were based on false claims and bad evidence that were most likely made under her watch.
Third of all, my bet is that she made a nice wad of cash on her initial sale of Airborne. Summit’s equity investment was estimated to be in the $70 million range, and just a year after Knight-McDowell cashed in, Summit tried to exit Airborne, for an estimated $350 million to $400 million. The auction ultimately failed. In early 2008 the class-action lawsuit for false advertising was settled. Airborne had claimed to ward off colds and the flu with no legit research backing the claims. The company denied it was in the wrong but paid $23.3 million in damages.
So I’d like to ask how much did Knight-McDowell pay for the company? I’m guessing less than she sold it for, since at this point it was probably unsellable to any other buyer given the damaging controversy. Add to that Airborne’s dire debt situation. In July, the company was levered 7X cash flow and in violation of its debt covenants. The violation, and failure to obtain amendments, lost it access to the revolver. Airborne had $153 million in debt at the time, with around $120 million in annual net sales as of April. All this does not bode well for Airborne’s debtholders, and I’m curious as to how they fared in the change of control.
But in the end, all this doesn’t really matter, financially, for Summit. The firm made back most of its money in a $180 million recap in 2006. According to a Buyouts story I wrote earlier this year:
Summit Partners paid itself a $73.5 million dividend, a sum Moody’s Investor Service called a ‘substantial part of the original investment.’ The firm used the remaining $83 million to pay down debt.
Still, the bad publicity is clearly a sore spot for Summit, since the firm has removed all traces of its ownership of Airborne from its Web site. When asked, a spokeswoman said: “Summit is bound by a confidentiality agreement related to its sale of Airborne Health back to its founder.”