Dallas-based Future Food, Ltd. (“Future Food”) supplies a broad range of fresh seafood salads and refrigerated dips to major supermarkets and distributors in 30 states.
In late 2000, Future Food’s industry was stable and highly fragmented and enjoyed healthy operating margins. Future Food shared these characteristics and also had a strong customer-focused orientation and a desire to make an accretive acquisition. Future Food therefore executed a signed Letter of Intent to acquire a West-coast-based target company with manufacturing capacity and a complementary product line. Future Food’s controlling shareholder, a Dallas-based fundless sponsor, sought $9.0 million in subordinated debt to consummate the transaction. The fundless sponsor contacted Dos Rios Partners’ Jay Turner, who at the time was affiliated with a bank mezzanine fund, to provide that acquisition/growth funding.
In February 2001, Jay helped provide $9.0 million in five-year, interest-only, second-lien subordinated debt to enable Future Food to consummate the acquisition and provide the combined companies with sufficient capital to grow. The predecessor bank mezzanine fund received a market current-pay coupon and, through equity warrants, a 21.5% interest in Future Food. The Sponsor received sufficient funds to close the acquisition and provide growth capital and therefore did not need to inject any additional equity capital
Jay worked closely with Future Food’s sponsor and management team; attended every Board meeting; and supported the sponsor in the integration of the acquisition and the execution of the growth plan. In addition, when Jay later left the bank mezzanine fund, he continued to advise and work with the sponsor on the exit of the investment.
In July 2004, the Sponsor sold Future Food to a publicly traded business development company and received a substantial gain on its investment. The bank mezzanine fund received $20.22 million in total proceeds on its subordinated debt and warrant position and earned a 32.3% IRR and 2.25x ROIC.