Lessons from Lew’s, Strike King, and Sale to A Private Equity Firm

(Here’s a commentary from Ken Duke, editor of our sister publication, Fishing Tackle Retailer, on the continuing trend of private equity funds buying out legacy brands in the fishing industry.)

By Ken Duke, Editor
Fishing Tackle Retailer
from the Fishing Wire

Last week we published a press release announcing that Lew’s Holdings Corporation (Lew’s, Strike King, Hunters Specialties, et al.) has “partnered” with BDT Capital Partners — a “merchant bank that provides family- and founder-led businesses with long-term, differentiated capital.”

Apparently, BDT will not own Lew’s Holdings outright, but will control a majority of the company and “fund its next phase of growth.”

Peak Rock Capital, the private equity firm that owned Lew’s Holdings, is out. But Ken Eubanks, the CEO of Lew’s Holdings, and his current management team will continue in their roles. Business as usual.

How private equity firms typically work

Phase 1 – To anyone who follows the business side of the fishing industry and the way that private equity firms (PE) operate, the sale was not a surprise. It’s what PE firms do. They buy companies which they believe have growth or efficiency potential. That’s Phase 1.

Phase 2 – involves the core proficiencies of each PE firm. Some fashion themselves marketing gurus. Others see themselves as efficiency experts. And still others hold themselves out as masters of manufacturing or distribution. Ideally, they’re really good at this thing and use this skill to advance the new holding.

Phase 3 – occurs after the PE firm has worked its Phase 2 magic. They take the business — hopefully — to a better place with better marketing, cheaper manufacturing, stronger distribution … or whatever it is they do. Once that’s complete — and it invariably takes two and a half to five years — they sell to someone else. Usually it’s another PE firm with a different set of core competencies. In fact, that’s part of the sales pitch. If the first PE firm is strong on domestic distribution, they look for a firm that’s great at overseas distribution. They tell them, “You know, we’ve got the U.S. market covered with this company, and we’re killing it! With your strength in Europe and Asia, there’s no telling how far you could take it!”

And the process begins anew.

What can we learn from BDT and Lew’s?

Quite a lot, I think, and it’s right there in the press release.

But first, let’s take a look at the Peak Rock Capital website. It describes the firm on the homepage, as follows:

Peak Rock Capital is a leading middle-market private investment firm. We make equity and debt investments in companies in North America and Europe. Peak Rock’s equity investment platform focuses on opportunities where it can support senior management to drive rapid growth and profit improvement, with expertise in corporate carve-outs and partnering with families and founders seeking first-time institutional capital. Peak Rock’s credit platform focuses on providing bespoke primary financings and making investments in secondary loans for corporate debt and commercial real estate. Peak Rock’s principals have deep expertise in complex situations and cross?border transactions, with the ability to provide tailored capital solutions and close transactions quickly where speed and certainty are priorities. [Emphasis added.]

Did you catch that? “Expertise in corporate carve-outs,” “partnering with families and founders seeking first-time institutional capital,” “secondary loans for corporate debt.”

Now let’s take a look at how BDT is described in the press release on the Lew’s Holding purchase:

BDT Capital Partners provides family- and founder-led businesses with long-term, differentiated capital. The firm has raised more than $15 billion across its investment funds and has created and manages an additional $4.7 billion of co-investments from its global limited partner investor base. The firm’s affiliate, BDT & Company, is a merchant bank that works with family- and founder-led businesses to pursue their strategic and financial objectives. BDT & Company provides solutions-based advice and access to a world-class network of business owners and leaders. [Emphasis added.]

Some complementary references to what we saw from Peak Rock Capital: “provides family- and founder-led businesses with long-term, differentiated capital.”

It’s obvious that one of the things driving this deal is capitalization and its various manifestations.

And here’s what BDT’s managing director said about the situation:

Led by industry veterans, Lew’s has a strong following among avid and enthusiastic anglers, a broad distribution network, high-quality products and an impressive innovation track record. Our investment in the company represents an opportunity to partner with an outstanding management team in a growing and dynamic industry. We view this as an attractive platform investment in a sector with significant opportunity for organic growth and consolidation, given the number of founder- and family-owned companies in this expanding category. [Emphasis added.]

She’s complimenting Lew’s Holdings’ management team, and BDT is looking to grow by acquiring other founder- and family-owned fishing and hunting companies. There are a lot of those, and many will grab the cash if offered.

So, what does this mean to retailers?

Not much, really. Lew’s and Strike King will continue to turn out high quality products that are sought-after by anglers. I’ll continue to use their stuff!

OK, but what does it mean to the industry?

That’s a tougher, more nuanced question. One on hand, that PE firms are showing interest in our industry is encouraging. They wouldn’t be here unless they thought they could make a buck — or several million of them.

On the other hand, the PE firms that are not savvy enough to leave a talented leadership team alone run the risk of losing the edge that made the company attractive in the first place. We’ve all either seen it or heard about it from friends. A small company is acquired by a larger company, and the first thing they do is destroy an attractive corporate culture and replace a quality leadership team. Before you know it, the small company that was so attractive becomes a cautionary tale.

I could give examples … but I digress.

Fortunately for my friends at Lew’s Holdings, that doesn’t seem to be the plan here. BDT knows a good thing when they buy it, and they’re content to let it keep doing its very successful thing.

Nevertheless, stay tuned for the next sale of Lew’s Holdings in 2023 … give or take a year.