Taking a Public Company Private


Company

Industry

Spinrite Inc.

Consumer

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Taking a Public Company Private


Company: Spinrite Inc.

Position: Consumer

Location: Listowel, Ontario

Date of Investment: November 2007

Exit Date: October 2015


Company Description
Spinrite is the largest producer and marketer of craft yarn in North America. Established in 1952, Spinrite is well known to the hobby market for its Patons, Bernat, Lily, Peaches & Creme, Caron and Phentex brands, which are sold through mass merchants, craft stores, and independent specialty stores. Spinrite markets approximately 4,000 SKUs across more than 100 product families, possesses the most diversified craft yarn manufacturing operation in North America, and is recognized as a market leader in new product development.

Background
Sentinel previously owned Spinrite through our second fund, Sentinel II, which initially acquired a majority interest in the company from its founding family in 2004. Sentinel subsequently took Spinrite public as an income trust on the Toronto Stock Exchange and substantially exited from its ownership position. After initial strong performance, Spinrite's share price sharply declined due to a weakening in the overall craft market caused by a drop-off in demand for fancy yarn and a ruling by the Canadian government that called for the expiration of tax benefits associated with income trusts. Because Sentinel II retained minority stub ownership and two seats on Spinrite's board, Sentinel was in a position to assess Spinrite's prospects first-hand and began to consider a take-private transaction. As Spinrite and other income trusts continued to fall out of favor with the public markets, Sentinel saw an opportunity to acquire a business it knew well at a reasonable valuation.

The Opportunity

  • Acquire a category leader with the most comprehensive brand portfolio in the craft yarn segment.

  • Partner with Spinrite's solid management team that Sentinel was very familiar with and highly confident in.

  • Invest in an industry with strong projected category growth due to the aging of the baby boomers and increased number of younger knitters.

 

Accomplishments
Completed a Complicated Transaction and Achieved a Smooth Transition: Sentinel successfully executed a complex take-private of a Canadian business by a U.S. entity on schedule and with no major setbacks. Post-closing, Spinrite made a smooth ownership transition from the public markets to Sentinel's ownership, with no notable employee turnover. The transaction also gave the management team the opportunity to focus on long term objectives without the distraction of public reporting requirements.

Built Strong Partnership with Management: Sentinel closely collaborated with management to establish growth plans and priorities and to align interests. We also implemented an option and equity co-investment program that provided our management partners with significant equity upside and aligned incentives.

Acquired Business at Reasonable Valuation: Due to the drop off in demand for fancy yarn and the broader decline in the Canadian income trust market, combined with Sentinel's belief that the public market valuation of Spinrite did not give adequate credit for Spinrite's future growth prospects, Sentinel was able to acquire Spinrite at a reasonable valuation.

Outcome
Over the next eight years, Spinrite's revenue and EBITDA more than doubled and it exceeded the growth objectives established at the outset of the transaction. In October 2015, Spinrite was sold to another private equity group in a successful transaction for Sentinel and management.