Cedar Creek Rustles Up $60 Million First Closing

GREENSMIX DIVISION OF WAUPACA NORTHWOODS

Christine Faulks sees a lucrative shade of green when pondering recent demographic trends. The United States is home to 70 million gardeners. Their average age is 50. And 100,000 people are turning 50 on a daily basis. "What do you think those 50-year-olds are doing when they're not gardening?" the president of Greensmix in Waupaca says. "They're golfing. Anyone can play the game. You don't have to be good at it. You can just walk around and enjoy getting fresh air."

Greensmix is well positioned to capitalize on those trends. The firm, launched in 1986 as a subsidiary of Faulks Brothers Construction, is the nation's leading provider of "root zone mix," the soil used as the growing medium for greens, tees and sports turf. The typical 18-hole golf course may require 8,000 to 15,000 tons of root zone mix, which costs $25 or more per ton. "It takes a long time to build a reputation in this business," Faulks said. "What we do (with land) is what a pharmacist does with medication. A soil-testing laboratory gives the course builders a list of blend specifications and then the builders give it to us."   In other words, the first green must perform identically to the last one. Water must percolate at precise rates. Rich color and healthy growth must remain consistent. "What we do is tremendously important," Faulks said. "If you had to rip that green out, the liability would be horrendous. "The fact is, golfers will know if the green is not performing. If it's very hard, if it has standing water, if the ball lands improperly - they'll see the negatives. They take the positives for granted."

Greensmix has worked on golf courses designed by professionals like Arnold Palmer, Jack Nicklaus, Robert Trent Jones II and Tom Fazio. Closer to home, it recently completed projects including Whistling Straits near Kohler, Thornberry Creek in Green Bay and Horseshoe Bay in Door County. Prospects for growth also remain positive: The United States is home to about 26.4 million golfers, 16,400 courses and continues to grow at about 7.5 percent annually. This year alone, about 1,000 courses were under construction and another 1,000 were in planning stages. Greensmix strives to be involved in about 25 percent of those projects, Faulks said. Few golf enthusiasts realize the extent of this specialty business nestled in northeast Wisconsin. "That's half the fun of it," Faulks said with a laugh. "People don't even know we're here."

Some jobs are more memorable than others, she added. During a project in Hawaii, for instance, the Greensmix crew had 27 hours to unload 7,000 tons of soil blend from an Australian freighter. If they did not clear the docking space within that time frame, the company would face severe demurrage penalties. "That was a memorable, thrilling experience," recalled Faulks, who also is the first female board member of the Golf Course Builders Association of America.

In recent years, Greensmix's parent company - Waupaca NorthWoods - has undergone a substantial transformation. In July 1998, Milwaukee's Cedar Creek Partners acquired the company for an undisclosed amount.

Waupaca NorthWoods' other divisions include Waupaca Materials and NorthWoods Organics, making it the Midwest's largest suppliers of packaged soils and manure for retail chains like Target, Wal-Mart, Menards and Fleet Farm. "We want to be the largest in the country," Faulks said. While the Faulks family appreciated the sentimental value of retaining the organics-materials operations, the sale came at a good time, she said. "It was like a raising a child. We grew (those divisions) and 11 years later, these were very, very serious companies. It was time for them to go to college," Faulks said. "It was a big emotional decision. But it was not like selling our name (associated with the 50-year-old construction company). "It took us a couple of years to realize that if we were going to take these businesses to the next step, we had to let them go."

Since then, Waupaca NorthWoods has moved aggressively to roll up other players. In November 1998, it acquired the retail lawn and garden lines of Pace Nursery Products, based in Bellevue, Wash. The acquisition included four plants in Berna Lillo, N.M.; Parker, Wash.; Nampa, Idaho; and Spearfish, S.D. In February, the company picked up Interlochen Corp.'s Landscape Division, encompassing operations in Sikeston, Mo., and Little Rock, Ark. The acquisitions have allowed the Waupaca company to grow its work force from 40 full-time and 40 seasonal workers to 150 full-time and 125 seasonal workers. While Waupaca NorthWoods would likely have pursued the buyouts regardless, the addition of Cedar Creek's monetary muscle "brought a strong financial partner into the process," Faulks said.

Earlier this month, Waupaca NorthWoods and Smith Garden Products Inc. of Cumming, Ga., announced an agreement in principle to combine the two companies. The decision probably will reach completion by the end of the year. "We're likely to keep the Waupaca NorthWoods name, but incorporate their brands into the fold," Faulks said, adding the combined assets will allow the Waupaca side of the equation access into markets in Texas, Florida, Mississippi and Georgia. That growth allows the company to stake strong market shares in products appealing to both gardeners and golfers, Faulks said. "We're a year-round operation," she said, noting November through February "we enter the repair stage, working on equipment, repainting and getting ready for next spring."
                                                                                By Avi Stern, Fox Valley Inc. Editor

Editor's Comment: Over the past few years M&A Today has in terviewed numerous private equity groups, each time in an effort to identify and elaborate on what the funds do difterently from their peers and more importantly, why they are individually successful. Our trip to Milwaukee to interview Cedar Creek Partners (CCP) was particularly rewarding not only because the firm focuses on the "rust belt" of our country but also because of its total approach.

Background
Cedar Creek Partners originated as an amicable spin-off from Banc One Venture Corporation, a Milwaukee-based whollyowned subsidiary of Banc One Corporation. While working as a team for over 10 years at Banc One, Wayne Foreman, Dan Jagla and Bob Cook established a portfolio of 30 companies with over $1.1 billion in combined revenues. The impetus for this executive management team to operate independent of Banc One was driven basically by regulatory and strategic factors.

The Fund
Following lengthy negotiations, Messrs. Foreman, Jagla and Cook reached an agreement with Banc One on December 31,1996. Under the agreement, they would form an independent company yet continue to advise Banc One with respect to its remaining 10 portfolio companies. Very importantly, they would continue to receive their sharing of the profits. In addition, Banc One agreed to commit $15 million towards the formation of Cedar Creek Partners' first limited partnership. Starting with the commitment from Banc One and a significant amount of capital of their own, Cedar Creek Partners raised a total of $77 million from financial institutions, pension funds, charitable foundations and high net worth individuals. Between the Banc One portfolio and the new partnership, Cedar Creek Partners now has over $100 million under management.

The investment model targets low to medium tech companies with enterprise values between $10 and $50 million, with a minimum EBIT of $2 million. The structure of a Cedar Creek Partners' deal is typically comprised of 50% senior debt, 25% mezzanine capital and 25 % equity. They usually structure their transactions without contingencies such as earnouts. Their targeted internal rate of return (IRR) is in the range of 30 % to 35 %, but their track record has exceeded this return. One reason for exceeding their investment targets is that this management team has not recorded a realized loss in its last 21 investments dating back to 1990. Cedar Creek's preferred valuation method utilizes a Discounted Cash Flow approach. Since November 1997, Cedar Creek Partners' new partnership has acquired/recapitalized 7 new platform companies and funded 3 add-on acquisitions to those platforms. They have also funded one add-on acquisition for the Banc One portfolio.

Cedar Creek Partners is not a heavy user of seller financing or earnouts. They often use their cash purchase price proposals as a negotiating advantage against competitive buyers. They tend to use closing escrows to protect against quantifiable issues, such as working capital calculations, or known matters of liability or impairments to the assets.

The Management Team
Management has recently committed to add Steve Peterson as the fourth owner of Cedar Creek Partners LLC. Steve has been with Cedar Creek/Banc One since January 1994. While this group averages only 40 years of age, the partners average about 14 years of private equity management experience. Additionally, the firm has four other key players: Mike Gandrud, VP (and a junior deal maker); Ellie Berg, V-P-Marketing; Becky Diedrich, VP-Finance and Brian McDonald, an associate.

Differentiation
M&A Today pressed the management of Cedar Creek Partners to tell us why, as a private equity group, they are special. Their answer: "We pull it all together." The implication, after further explaining, is that Cedar Creek Partners does not sell capital. With so many private equity firms around, capital is no longer the distinguishing feature that it once was. Cedar Creek sells itself as a buying principal that has the experience, track record and credibility to get the deal done. "We price, structure and negotiate the transaction. Additionally, we conduct most of our own due diligence and raise any necessary outside financing. We can work with an incumbent management team or bring in outside expertise. We happen to have money too."

Capitalizing on Relationships
Cedar Creek Partners largely creates its own deal flow through its proprietary contact base and business relationships. One such relationship led to the formation of EPIK Corporation, a consolidator of point-of-purchase displays. One of Cedar Creek's contacts referred Perry Ankerson, an executive with considerable experience in the industry, to Wayne Foreman. After meeting with Perry, Cedar Creek agreed to support his consolidation strategy within the industry. Cedar Creek announced this initiative to its contact base, which then produced a considerable amount of leads and prospects. The effort has resulted in two acquisitions so far, with several more under consideration. The first two companies are:

Art Etc., Inc. from Louisville, Kentucky is a screen process printer that provides creative arts design, graphics printing production, and fulfillment services for advertising and promotional projects. The company is one of the top ten companies specializing in point-of-purchase displays in the United States. Art Etc. primarily serves convenience stores, fast food restaurants and advertising agencies.

Universal Electric Sign Co., Inc. is an international manufacturer of market specific indoor neon and outdoor identity signs located in Maspeth, New York. The company also has an operation in Dublin, Ireland which manufactures and distributes neon signs to the European market. Staffed with over 100 highly skilled glassblowers, Universal is one of the "Big 3" neon sign manufacturers worldwide. Some of Universal's customers are Arby's, Snapple, Barnes & Noble, Miller Beer and Whirlpool.

These opportunities were referred to Cedar Creek Partners not because they are just another private equity firm, but because they have formed a relationship with Mr. Ankerson and have organized a firm which is now recognized as a leading player in the point-of-purchase display industry.

Another example of a unique proprietary relationship is between Cedar Creek Partners and Bruce Mommsen. While at Banc One Venture Corporation, the management of Cedar Creek Partners had great success in backing Mommsen's company, Imperial Acquisition Corporation. Imperial was a successful chain of sports apparel and footwear stores operating in both strip malls and enclosed malls. After growing the company to over $50 million in revenue, Mommsen sold Imperial to Just for Feet, Inc. Bruce solidified his relationship with Cedar Creek's management team by investing part of his proceeds into their new partnership. Later, Cedar Creek Partners approached Bruce about using the Cedar Creek contact base to search for another retailer to buy. This joint effort resulted in the purchase of Noah's Collectors Showcase, a retailer of collectables located in the Northeast.

Due Diligence
Cedar Creek Partners prides itself on its due diligence when consummating a transaction. The firm conducts most of its due diligence itself and farms out only specific limited tasks to outside consultants. They typically hire a nationally recognized accounting firm to conduct financial due diligence and an environmental engineering firm to assess environmental matters, but the business, management and marketing due diligence is usually conducted internally. Cedar Creek Partners has found that it is particularly important to conduct indepth market due diligence. One of the basic parts of the process is to interview each of a company's major customers and a random sampling of the smaller ones. They believe customers are best suited to opine on why a company is successful and its prognosis for the future. Cedar Creek Partners requires superior performance in each of the following areas: the company's importance to customers, the company's competitive position within the industry, industry dynamics, integrity of management and analysis of profitability.

Revealing Mistakes
M&A Today bluntly asked whether the management team has made any due diligence mistakes. Wayne Foreman responded: "Through experience, we have learned that in co-investment situations, we cannot rely on third parties to conduct our due diligence. When we rely on ourselves for due diligence, we have no one else to blame. It is also critical to discuss industry issues with knowledgeable outsiders in addition to operating management teams. These outsiders often offer an interesting and unique perspective."

Conclusion
In the March 1998 issue of Forbes magazine ("LBO Madness"), Cedar Creek is highlighted as one of a vast majority of "small and anonymous" equity partnerships. Although, Cedar Creek may be small when compared to other funds within the industry, the firm is in fact a well-known, reputable and successful buyout group focusing on middle-market business acquisitions, consolidations and recapitalizations.
                                                                                By Russ Robb, Editor-In-Chief, M&A Today