Small Market Deal of the Year Is… Arbor Investments and Great Kitchens

No matter how you slice it, Arbor Investments’ deal to buy and transform Great Kitchens, a “take and bake” pizza maker, is a deserving winner of the Buyouts Small Market Deal of the Year award for 2011.

By the time Great Kitchens was sold in an auction to Aryzta, a Swiss food company, for $180 million in 2010, Arbor had transformed both the company and the concept of private-label “take and bake” pizza, where consumers take home a fresh, ready-to-bake pizza for much less than the cost of a delivered pizza. The company also makes appetizers and sandwiches.

Arbor, a Chicago-based private equity firm specializing in the food and beverage industry, bought Great Kitchens in 2004 for $17.2 million. Upon the sale, Arbor reported a 69 percent IRR and a 17x cash-on-cash return over its original $7.1 million investment. Over six years EBITDA grew by a factor of eight to $27 million from $3.4 million.

At present, Arbor has $294 million of capital under management in two private equity funds. Its investors include Goldman Sachs, Babson Capital Management and the Kentucky Retirement System.

When it bought the company, step one for Arbor was to change the name (it had been called Cousins Foods) and install a new management team led by Dennis Malchow, a former executive at Oscar Mayer. It then set out to build a state of the art, $30 million factory in suburban Chicago, which allowed Great Kitchens to lower costs and scale-up rapidly.

As the company forged agreements to sell its pizzas to nine of the nation’s 16 largest food retailers, including Wal-Mart and Kroger, it saw revenues soar more than five-fold to $262 million. The company’s agreement with Wal-Mart was especially important for its growth in sales, and now Great Kitchens is the largest maker of take and bake pizzas in North America.

Look for Buyouts and to announce Deal of the Year winners in our remaining two categories, Turnaround of the Year and European Deal of the Year in coming weeks via Twitter. Follow us @Buyouts.

Winners of the four Deal of the Year awards will be honored at a lunch on April 26 at our Buyouts New York conference in New York City. There, we will also announce the winner of the Deal of the Year, whose nominees are the four individual category winners.