Look, an exit! CenterOak agrees to sell Wetzel’s Pretzels; expiring sub lines put pressure on LPs

CenterOak is selling iconic brand Wetzel’s Pretzels for $207 million.

Morning Hubsters!

This is Chris on for Wire Wednesdays.

The general economic dislocation has given rise to so many different things to consider when writing about the LP/GP connection. We’re heard a lot recently about eroding alignment, not to mention slowing commitment pace and rethinking of relationships.

We’ll get to that in a bit. First though, check out some deals:
Wha?: Hark, an exit! This is so important these days, to see a firm actually exit an investment. As M&A activity slows, this includes exit activity, and this means a slower pace of distributions, which is not great for LPs, who are at the moment in need of more liquidity to deal with expiring subscription lines of credit, new deals and to make commitments to new funds.

Someone said recently, (I’m paraphrasing), TVPI is out, it’s all about DPI now. That’s PE code for, forget your paper returns, put some cash on the table, my dude.

Anyway, here’s an exit. CenterOak Partners, which closed its debut fund back in 2016 on $420 million, agreed to sell iconic brand Wetzel’s Pretzels for $207 million in cash. The buyer is MTY Franchising USA, a wholly owned subsidiary of MTY Food Group.

CenterOak acquired the company in 2016. Wetzel’s has a network of more than 350 locations, 90 percent of which are franchised. Read more here on PE Hub.

Healthcare: PE Hub’s Aaron Weitzman spoke with Greg Belinfanti, senior managing director at One Equity Partners, on themes the firm is pursuing, which includes the shift of care out of institutional settings and into homes.

“We think there’s many different ways to invest behind that shift,” he said. “For example, we invested in Simplura, which is a provider of home care aides in several different states. But a company like Adapt Health, which the firm is also invested in, distributes products to people and becomes an increasingly important provider as care moves out of institutional settings.”

One Equity also sees opportunity in the dislocated market, Belinfanti said. “You haven’t seen it yet, because it’s still early days, but I think over time you’ll begin to see that portfolio companies that have liquidity and access to capital and balanced capital structures will be able to go on the offensive; acquiring companies at attractive values in difficult times.”

Through the good economic times and the bad, one core aspect of OEP is that the firm believes bolt-ons are core to growth.

“We’re constantly thinking how do we grow these businesses through acquisition,” Belinfanti explained. Read the interview here at PE Hub.

At risk: I’ve been chatting with folks about threats to the LP/GP alignment and one issue that constantly comes up is the use, and perhaps at times the abuse, of subscription lines of credit. It’s a complicated issue right now because both LPs and GPs agree sub lines are especially helpful in times of constrained liquidity, as a way to reduce the amount of capital calls and flatten out the J-curve.

However, it’s at precisely these times when sub lines could prove riskiest, especially for LPs with commitments strung out across multiple lines without full knowledge of how much they owe. When that bill comes due, it could be a tough reckoning for those LPs with not enough transparency into their exposure, forcing them to emergency sell at discounts.

The sub line business for now is chugging along at good pace, with no indication yet of GPs losing appetite because of the rising cost of debt, sources told me. Some banks are weighing the business, however, as they work to reduce liabilities.

Institutional Limited Partners Association warned against just this sort of situation in 2020 when it called for better reporting from GPs about an LP’s exposure on sub lines.

“We’re increasingly asking managers to provide both sets of data, show us the net returns and cash flows as if you had not used a sub line and ones where you did,” a family office LP said in a past interview. “Everyone is using sub lines a little differently – some people are still not using them, that’s probably the exception to the rule. Some are keeping them longer, some shorter. It does skew results.” Read more here on Buyouts.

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