Blessed are the cheesemakers: Ronin Equity’s got an appetite for dairy investing

The PE firm recently merged three brands to form Red Apple Cheese and will be spending another $50m for add-ons.

Ronin Equity Partners is going after specialty cheese and charcuterie shops to consolidate a sector largely untapped by institutional capital.

Kicking off this effort, the firm recently bought three premium cheese companies – Red Apple Cheese, Barron County Cheese, and Cheese Brothers – for just over $50 million combined, sources told PE Hub. The combined business rakes in over $40 million in revenue and has an EBITDA margin of about 15 percent, sources said.

Ronin Equity will now scale the platform, which operates under Red Apple Cheese, by adding other brands within the $1 million to $3 million EBITDA category.

“By the end of this year, I’ll probably buy five more cheese companies,” said David Feierstein, co-founder and managing partner at the firm, declining to comment on financial metrics.

While private equity firms are no stranger to cheese and meat brands, Ronin Equity’s playbook is different: it stacked up a private label cheese manufacturer with a traditional retailer and a 100 percent e-commerce seller – and is aggressively looking to capture additional market share.

This is unlike most firms, which hold minority stakes in independent cheese companies and haven’t diversified with add-ons. One example is Centerfield Capital Partners and Union Capital-backed LakeView cheese, a cheese products company bought for about $90 million, according to sources.

Elsewhere, Borgman Capital, Tecum Capital Partners and Midwest Growth Partners in 2019 invested Gilman Cheese, a maker of premium processed cheese that generated $7 million in EBITDA, according to sources. Midwest also backed blue cheese maker Maytag Dairy Farms in 2019.

In more recent activity, The Baupost Group earlier this year bought a minority stake in Mexican-style cheese company Cacique. According to PE Hub sources, the company commanded 19x EBITDA, implying a deal in the $570 million to $760 million range, based upon its $30 million to $40 million in EBITDA.

Centerfield, Union Capital and Tecum did not immediately return PE Hub‘s requests for comment. Baupost and Borgman declined to comment.

Ronin Equity will build out Red Apple Cheese with more add-ons requiring some $50 million in equity in addition to debt financing, Feierstein said. This could reshape the market, which is filled with mom-and-pop meat and cheese shops.

“We are looking at spreadable products, ethnic and Hispanic cheese; there are plenty of things to do on the meat side as well,” Feierstein said.

Although, Feierstein added, “I will have a little bit more competition on the cured meat side.” He was referring to Entrepreneurial Equity Partners – a private equity firm with three meat brands in its portfolio.

Within the Red Apple Cheese platform, online retailer Cheese Bros is the only label offering meat to customers. Barron County manufactures and packages cheese for both brands; Red Apple primarily sells its smoked, kosher cheese at grocery stores and at the premium sections of Walmart and Whole Foods.

Red Apple makes up about 80 percent of Barron’s orders, Feierstein said.

Inside Ronin Equity’s playbook

For Ronin, the three-way deal came together quickly. The New York-based firm met Red Apple mid-March and sent the company a term sheet the next day; a week later the firm was introduced to Barron County through Red Apple, and then to Cheese Bros. Both Barron County and Red Apple signed agreements in a day, with Cheese Bros taking about a week, Feierstein said.

Simultaneous combinations like this are Ronin Equity’s preferred style.

For example, the firm’s debut investment involved buying filtration system maker Komline-Sanderson and concurrently merging it with Barnes International, a manufacturer of coolant filtration equipment. Within two weeks, it also bought a producer of reverse osmosis systems, Harn RO Systems, and fittings and valves manufacturer Haseldon.

“By the end of July, we would have completed three platforms and six add-ons,” Feierstein said. This count includes Ronin Equity’s upcoming third platform and an add-on deal. Both are within the industrial space and a letter of intent is signed.

Unlike the upcoming deal, where management is rolling a 25 percent to 30 percent equity stake, Ronin Equity owns about 90 percent of Red Apple Cheese.

Ronin Equity was founded in 2016 by seven dealmakers who have now worked together for about 10 years.

Before pursuing individual investments on a deal-by-deal basis, the firm co-invested alongside large buyout firms, taking minority positions in companies. For example, the firm invested in Blackstone-backed ATM maker National Cash Register as well as Bain Capital’s Diversey, a hygiene solutions company.

Ronin Equity, in March, closed its inaugural fund at $300 million, through which it has funded its seven acquisitions (including add-ons). It aims to put $400 million to work this year thanks to the firm’s network of co-investors.

The firm on each investment commits a senior executive for about six months to work alongside the management team post-acquisition. “We go in as a CFO but act more like a COO or chief administrative officer and do a lot of back-office stuff,” Feierstein said.

For the cheese platform, Ronin Equity partner Tiffany Bell will be stepping in to handle the day-to-day work. The plan is to expand into new channels like convenience stores and food service – including burger joints and restaurants – while growing its sales force.

Although the team played around with the holding company’s name, Ronin Equity will retain and protect individual brand names of all three cheese companies. “We came up with 80 different names combining the three names,” Feierstein said. “The lawyers signed off [too]… but last minute we were told the name we wanted we couldn’t trademark.”

Update: This report has been updated with accurate financials on comparable industry deals after receiving new information.