Clearlake agrees to sell Proven Brands for ~$259m, Arcline founder talks about navigating inflation, supply chain challenges

Clearlake Capital agrees to sell Proven Brands to Hain Celestial Group for about $259 million.

Happy Monday!

Supply chain delays are impacting private equity investments, especially those within the industrials and manufacturing sectors (not so much the software-focused shops). I sat down with Rajeev Amara, founder and CEO of Arcline Investment Management, to talk about how the firm is navigating the challenges in today’s market that include persistent inflation and shortages or delays of essential components.

Arcline earlier this year closed its second fund on $2.75 billion, after raising $1.5 billion for its debut fund, making it one of the largest-ever first-time offerings in private equity. Amara worked at Golden Gate Capital for many years before starting his own shop in 2018.

Read here for the full Q&A. Here’s a taste:

Where is your focus in this environment of inflation and supply chain disruptions?

Well, let’s talk about what we are not investing in. In this environment, we are staying away from several categories of businesses. Firstly, we are avoiding companies with price deflationary business models. For example, we are avoiding contract manufacturers as they are expected to pass on cost savings to their customers. Secondly, we are avoiding companies with concentrated customer bases, especially where the end customers are in commodity industries because undoubtedly you will get margin pressure down the road.

Thirdly, we are avoiding people-intensive businesses where labor inflation and labor shortages are expected to continue through next year and beyond.

And finally, we are being mindful of investing in companies who want credit for a lot of pro forma earnings. A lot of companies are annualizing their recent price increases but they’re not annualizing their labor cost increases, labor shortages, raw materials cost inflation, so there’s a mismatch there and that could really manifest itself next year with lower margins, and you don’t see those in the quality of earnings, you just see the annualization of a price increase.

So even though we expect all of this to be transitory – 12 months or 18 months – you still have to think about it because you may have a year or two of flat Ebitda. Even though there’s healthy demand, your Ebitda may not grow as much over the next couple of years, so it is incorporated into our underwriting and valuation models.

Sale: Clearlake Capital agreed to sell Proven Brands to Hain Celestial Group for about $259 million. The sale includes ParmCrisps and Thinsters brands out of Clearlake’s Better For You Holdings food platform, which includes better-for-you snacks and beverages.

Clearlake acquired the company in 2014 and grew revenue by around 6x during its ownership. Clearlake also grew its employee base from less than 10 to more than 250.

Read more here on PE Hub.

Newbie: As you know, Dear Reader, we love tracking new firm formation and first-time fundraising. Here’s one we’re watching: Camber Partners, formed by Scott Irwin, a former Rembrandt Venture Partners GP, raised $100 million for its first fund, writes Kirk Falconer on Buyouts. Irwin founded Camber in April 2020 to acquire product-led growth software businesses.

That’s it for me! Have a great rest of your day. Hit me up with tips n’ gossip, feedback or your thoughts on life at cwitkowsky@buyoutsinsider.com or find me on LinkedIn.