Nautic Partners, Garnett Station in take-private deals; Beatrice Mitchell shares H2 outlook

Happy Monday, Hubsters. MK Flynn here with the Wire.

Take-private deals are proliferating this year, and two more were announced this morning:

Nautic Partners is buying a publicly-traded pharmacy services provider for $570 million and combining it with another it already owns.

And Garnett Station Partners is taking the owner of Pollo Tropical restaurants private for $225 million.

Today, we’re also featuring an H2 Outlook Q&A with Beatrice Mitchell, the co-founder and managing director of Sperry, Mitchell & Company, about how the lower mid-market is teeming with deals.

Let’s start with the news.

Pharmacy innovations
Nautic Partners has agreed to acquire Tabula Rasa in a take-private deal for $10.50 in cash, as Iris Dorbian reports. Nautic will merge Tabula Rasa with portfolio company ExactCare Pharmacy, a medication management and pharmacy care provider. The deal values Tabula Rasa at about $570 million.

John Figueroa, ExactCare’s current executive chairman, will assume the role of chairman and CEO of the combined company. Tabula Rasa will continue operations in all of its locations, including Moorestown, New Jersey, and Brian Adams, Tabula Rasa’s current president and CEO, will assume the role of president of the combined company.

“Tabula Rasa has deep expertise managing care for the most vulnerable patients in our healthcare system and driving meaningful clinical and financial outcomes for the payers and providers that care for those patients,” Figueroa said in a statement. “Combined with ExactCare’s comprehensive long-term pharmacy care services that have served hundreds of thousands of people across the country, we will be even better positioned to put patients first to improve their health and wellness.”

There’s been a lot of innovation in the pharmacy services sector, as consumers demand better experiences in all aspects of retail. As a result, PE Hub has tracked a lot of deals in the sector this year. You can read some of our previous coverage here.

Deep roots
Authentic Restaurant Brands, backed by Garnett Station Partners, is buying Fiesta Restaurant Group, parent company of Pollo Tropical, for $225 million in another take-private deal, Iris reports.

Pollo Tropical will remain based in Miami and the company’s leadership team will continue to operate as an independent brand within the ARB platform.

“Fiesta and Pollo Tropical restaurants are a natural fit into ARB’s existing portfolio,” said Matt Perelman, managing partner and co-founder of Garnett Station, in a statement. “Pollo Tropical restaurants have a storied heritage and a deep-rooted connection with their local communities that perfectly align with ARB’s ethos and value proposition.”

Established in 2021, ARB is a holding company of regional food and beverage brands, including Primanti Bros Restaurant & Bar; P.J. Whelihan’s Pub & Restaurant; and Mambo Seafood.

H2 Outlook
While dealflow for bigger deals has slowed down this year, life in the lower-mid-market has been fast-paced, reports Beatrice Mitchell, the co-founder and managing director of Sperry, Mitchell & Company.

Since its founding in 1986, the New York-based sell-side boutique investment bank has arranged more than 300 transactions across a wide spectrum of industries, including business services; consumer products; distribution and retail; healthcare; industrial products; packaging; and telecom and technology.

For example, Sperry, Mitchell recently advised NEL Frequency Controls on its sale to Abracon, which was acquired by Genstar Capital earlier this year.

I asked Mitchell for her outlook on dealmaking in the second half of 2023.

What was Sperry, Mitchell’s dealflow like in H1, compared with the last few years?
Interestingly, our dealflow has remained consistently strong since covid. Our business is sell-side M&A advisory work for private company owners. Activity levels in the lower middle market are always less volatile than larger M&A transactions. Of course, the rising cost of money and buyer concerns about weakening earnings impact all markets. However, many of our private company owners decide to sell primarily for personal, non-economic factors, rather than trying to time the market perfectly. On the demand side, we still see great buyer appetite. Corporates and PE sponsors alike are awash in cash, with continued pressure to put it to work.

Do you think your dealflow will increase, decrease, or stay the same in H2? Why?
We believe that deal activity will continue to increase over the coming quarters. Buyers are flush with cash, interest rates are expected to trend down, and many PE sponsors who have been sitting on the sidelines will be under even greater pressure to transact. And … it now appears that the long-awaited recession may not actually happen.

Tell us about some recent deals you’ve worked on lately, and how they reflect trends in the lower-mid-market.
One definite trend that PE sponsors seem to have pursued in great measure has been roll-ups/consolidations in what are perceived as “fragmented” industries. The concept is to achieve operating efficiencies and gain market presence/cross-selling opportunities/pricing power by consolidating a lot of smaller players in an industry.

A decade ago, there were only a handful of PE shops that pursued consolidation deals as a core strategy, Audax perhaps being the prime example. Today, consolidations are a fundamental plan of action for many, if not most, PE sponsors in the lower middle market.

We recently sold Bradford Soap to Gemspring Capital Management. Bradford is a leading developer, formulator, and manufacturer of solid beauty and personal care products, primarily producing soap for both major and emerging personal care brands. Gemspring’s goal is to use Bradford as a base to build out a broader contract manufacturing platform providing an array of products and services to the personal care industry.

Similarly, we recently sold NEL Frequency Controls, a developer and manufacturer of leading-edge frequency control products, to Abracon, a portfolio company of Genstar Capital. Under Genstar’s ownership, Abracon has become a very active consolidator in the field of electronic components for the aerospace, communications and defense end-markets.

Why is the lower-mid-market active in dealmaking during this challenging economic period when larger deals have slowed down?
Deals in the lower middle market more likely involve sales of private companies than sales by PE sponsors or corporate divestitures. As I mentioned previously, owners of private companies often have considerations beyond the state of the economy when deciding when to sell. Personal considerations (like a desire to retire, or disagreements amongst partners or family members) often are the determining factor. Because of this, lower middle market M&A activity is always more consistent and stable than the larger deal M&A markets. There always seems to be a steady stream of private company sellers.

Besides, we have always found that there is a great appetite for well-performing businesses with defendable market niches, irrespective of the external markets or economic outlook.
I would also add that managing through the vicissitudes and challenges of covid changed the outlook for many private company owners. Once their companies recovered and began to gain momentum, many of these owners have shortened their timelines to selling. Frankly, covid took the wind out of their sails and the fun out of running their businesses. They are ready to move on.

We have more H2 Outlooks coming, so stay tuned.

And if you’d care to share your insights about PE dealmaking in the second half of the year, please reach out to me at my new email address: mk.flynn@pei.group

PE Hub Europe’s Craig McGlashan will bring you Tuesday’s Wire; Buyouts’ Chris Witkowsky will pen Wednesday’s Wire; I’ll be back with Thursday’s Wire; and PE Hub’s Obey Martin Manayiti will close out the week with Friday’s Wire.

Cheers,

MK