GTCR, the Chicago buyout shop known for its healthcare and fintech deals, has invested in Flavor Producers Inc through portfolio company Ceba-Tech Specialty Solutions.
Terms weren’t disclosed. Jeff Harris, CEO of Flavor Producers, is retaining a “very material stake” in the company, said Sean Cunningham, a GTCR managing director. The deal closed Dec. 15.
The investment comes from GTCR’s most recent flagship, which closed on $5.25 billion this year.
Flavor Producers is considered a “tweener,” both a consumer and chemicals deal, Cunningham said. Founded in 1981, Flavor Producers, West Hills, California, has a team of chemists and flavorists who create taste notes that are used to produce flavors, he said. Categories include coffee, vanilla, floral, fruit and vegetable.
FPI’s customers number more than 500 in the food, beverage and nutraceutical industries. It employs about 300 people. Harris and the rest of management are staying with the company, Cunningham said.
The deal is the latest example of GTCR’s strategy of partnering and investing with noted CEOs. The PE firm formed Ceba-Tech in January with CEO Charles Nicolais. Nicolais is the founder and former head of SensoryEffects, a food and beverage ingredient supplier that was sold to Balchem in 2014 for $567 million. GTCR and Ceba-Tech reached out to Harris earlier this year and discussions picked up in the fall, Cunningham said. “In the end, it was a bilateral deal,” he said.
GTCR’s investment also comes as President Donald Trump is expected to sign into law a sweeping reform of the U.S. tax code. The bill secured final approval Dec. 20 from the House of Representatives, Reuters reported. The legislation contains “lots of puts and takes” that the industry is looking carefully at, Cunningham said.
The bill includes a cap on interest deductibility, which could be a negative for firms that use lots of debt in M&A, Buyouts has reported. Cunningham says the legislation’s effect on companies will vary. “For some companies, it’s a very simple clear net positive. But for others it’s a little bit more marginal,” he said.
The legislation will continue to treat carried interest as a capital gain. But the minimum holding time for firms to enjoy capital gains was boosted to three years from one year. Holds of under three years would fall under the higher ordinary income rate, Buyouts said.
Some expect the bill to cause mergers to surge in 2018. But Cunningham doesn’t agree. “I don’t think this is really changing a lot of M&A behavior right now. Certainly, not for us,” he said.
Kirkland & Ellis provided legal advice to GTCR while PricewaterhouseCoopers served as accounting adviser.
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