Yellow Wood closes Suave deal; Bernhard grows government services platform

Good morning, Hubsters.

MK Flynn here with today’s Wire.

This morning, we’re taking a close look at a new home for an old brand, as Yellow Wood closes its deal for Suave.

We’ll also explore Bernhard Capital Partners’ new government services platform, including an add-on deal announced yesterday.

Finally, many of you are in Las Vegas this week for DealMAX.

PE Hub’s Obey Martin Manayiti is there too, and, below, we’ve got an interview he conducted at the conference about deal flow in today’s challenging economy.

But first, let’s get straight to the deals.

Democratizing trends
Yellow Wood Partners said this morning that it has closed its previously announced acquisition of Suave in North America from Unilever.

With the deal closing, the Boston PE firm is creating the Suave Brands Company (SBC), a stand-alone business focused on the beauty and personal care brand and led by newly appointed CEO Daniel Alter, a 20-year Unilever veteran with global strategy and operations expertise. The company will be headquartered in New Jersey.

Founded in 1937 and best known for its shampoo, Suave was one of the first brands to bring salon-quality hair care to the general public at an accessible price, according to Yellow Wood, which is continuing the tradition.

“We are building the Suave Brands Company into a beauty and personal care platform focused on democratizing trends, making them accessible to a broader consumer base,” Yellow Wood managing partner Dana Schmaltz in a statement. “To deliver on this goal, the Suave Brands Company will acquire beauty and personal care brands across multiple categories, including hair, skin, body, and more, that will drive synergies across the platform.”

PE Hub spoke with Schmaltz about Yellow Wood’s plans for Suave back in March.

Here’s an excerpt from that story:

What challenges will Suave face in the next couple of years?
Every day is a challenge for shelf space. Whether it’s on Amazon or in Walmart or Dollar General, it’s a constant battle. These retailers are extremely Darwinian in their use of data. If you start underperforming in terms of velocity or margin and each retailer looks at that slightly differently, we understand how each retailer looks at it so we try to create our pricing models to match the different distribution channels. Whether it be on a mass scale at Walmart or Target or whether it’s the value channel understanding how each retailer looks at velocity and sell-through is really important and that’s part of our success and hopefully being able to expand our shelf space with Suave. Improving distribution, improving margin and bringing new product development, innovation to these brands is very important because consumers want new things all the time.

Will Suave be a platform investment?
We hope so. The infrastructure that the size of this brand brings allows us to look at other brands in multiple categories for add-on acquisitions which might not have the distribution or efficiency channels that Suave has. With our operating strategy we can increase the sales through potentially better distribution or increase the efficiency through the operating strategy that we bring to Suave or others.

Yellow Wood’s portfolio includes a range of consumer brands, including footcare brand Dr. Scholl’s and Scholl International; Beacon Wellness Brands, led by its anchor brand PlusOne; beauty brands Real Techniques and EcoTools; self-tanning brands Isle of Paradise, Tanologist and TanLuxe; and skincare brands Byoma and Freeman Beauty.

Specialized services
Last week, Bernhard Capital Partners announced it is acquiring the federal and defense services business of VSE Corporation and creating a new platform in government services.

Just yesterday, the firm made an add-on deal when it bought Duotech Services, a provider of services for radar systems.

Obey spoke with Jeffrey Koonce, a partner at Bernhard, about the growing platform.

VSEC’s FDS business has many contours and is not dependent on a single line of business, Koonce told Obey. The company provides a suite of services, such as aftermarket distribution and repair services for land, sea and air transportation assets for government and commercial markets.

The business also focuses on parts distribution, supply chain management and logistics, engineering support, and consulting and training services for global commercial, federal, military and defense customers as well as information technology, including 911 data service and energy consulting services.

“We wanted to find a company that has specialized services, with a high barrier to entry and with a long relationship with the government,” said Koonce. “This business was founded in 1969 and has a long history of providing diversified services to the government, and that made it particularly appealing.”

The federal government budgets billions of dollars in annual spend for the defense sector. According to Koonce, Bernhard Capital expects the big spending to continue. “We are not betting on a short-term blip [in] spending in the area; these are services that will need to continue.”

In terms of growth, the firm is targeting both organic strategies that will keep strengthening the platform’s capabilities, and inorganic strategies aimed at extending its geographic footprint and increasing the services that the company offers.

“There will be a lot of synergies available to the platform as we have add-on acquisitions,” Koonce said.

In the field
As I mentioned, Obey is at the DealMAX conference in Las Vegas where dealmakers, advisors, investment bankers and other industry players are gathered.

He chatted with Christine Nowaczyk, chair of the ACG board of directors, and a senior vice president at BOK Financial, about the highs and lows of the private equity market.

Here are excerpts from their conversation:

What’s your view of the current market so far this year?
It has been a challenging year for private capital investments looking for opportunities. It’s been a market that has been slower than folks had hoped for, yet very strong in terms of the deals that have gotten done. Those ones are solid and strategic in nature. I think what we are seeing is a trend for industry specific investments, and no PE firm is the same. I think their personalities, their investment profiles, and criteria are really starting to be more specific in this new time of investing.

When do you think dealflow will pick up?
Once we have more visibility around the rate environment that we are in and around the political environment, we will start to see opportunities pick up. It’s not as though the market is slower than everybody would have hoped it would be. There is so much capital in the market, and you have so many dollars competing for fewer deals, and you see private equity firms and business development executives working really hard to be at the right place in the right time. We are hoping that the market really opens up in early 2024, once there is more certainty around the economic environment that we are all in.

How is the economy affecting transactions?
I would say the economic environment has put a lot of pressure on transactions, return expectations, and capital is harder to come by. The need to invest more equity in transactions seems to be at the forefront these days. That structure makes it harder to achieve the results that investors are looking for.

Deals are taking longer to get done and it’s not because there aren’t professionals out there to help see them through, but I think sellers are being more thoughtful about transitioning their business. Likewise, investors are taking their time to make sure the transaction is the right fit for them. There is a greater thoughtfulness about deals today because there are so few and wanting to make sure that they are investing in the ones that are the right fit.

Also, operating in the economic uncertainty that we are in makes it more challenging to anticipate what the return will be, what the exit strategy will be, what the add on opportunity will be, because we just have such an unclear economic picture.

But the good news is that private equity continues to provide tremendous economic value for the middle market by creating jobs, improving lives, and that is always going to continue. We need to remain optimistic.

What are you looking forward to at DealMAX?
To connect with so many dealmakers from so many different facets of our ecosystem. There is something for everybody, from the senior PE executive that has been doing this for a long time to the new young professional just learning how to network and build connections.

Obey will share more insights from the conference in Friday’s edition of the Wire.

And in the meantime, Buyouts’ Chris Witkowsky will write Wednesday’s newsletter, as per usual, and I’ll be back on Thursday, when I’ll introduce you to a new member of the PE Hub team!

Until then, happy dealmaking,

MK