Schafer: Caribou's buyer likely is in for the long term

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: December 18, 2012 - 9:04 PM
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At the Caribou Coffee on Grand Avenue in St. Paul, regular customers Aubree Neuville and Hannah Bilodeau, right, enjoyed their drinks on Monday.

Photo: Richard Tsong-Taatarii, Star Tribune

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The principal owners of the firm buying Caribou Coffee Co. are very private, and they will be using equity.

But the acquisition announced Monday in no way will resemble a classic American private-equity deal. There will likely be no quick exit. Maybe no exit.

The buyer is the Joh. A. Benckiser Group, a financial holding company of the Reimann family of Germany. The group gets its name from Johann Adam Benckiser, who started his namesake company in the chemicals business back in 1823 in Pforzheim, Germany.

Chemist Ludwig Reimann joined Benckiser and became a partner, best I can tell, in 1833. The family investment company still owns a big stake in Reckitt Benckiser Group PLC, a publicly held company formed from the merger of the family business and a British firm.

You would have to acknowledge that stock held for 179 years reflects a long-term view.

The contrast with an American private-equity transaction is not meant to suggest there is only one kind of private-equity transaction, with the relentless focus on reducing costs commonly associated with that kind of the deal. There are plenty of examples of private-equity growth investments, too.

But the typical private-equity ownership does mean a relatively short-term view.

Such investments are made out of a fund raised from limited-partner investors, and any fund has to get the capital back into the hands of the partners who originally put it up. Holdings in private equity of longer than five to seven years are generally thought of as a problem.

That means that a divestiture of some sort -- an outright sale or recapitalization -- necessarily needs to follow a private-equity investment.

There are no such investor expectations in this situation.

"If you look at German family businesses, the whole purpose to them is that they are not forced into action" by investors, said William Gamble, a St. Paul strategic planning consultant with extensive experience in Germany. "It would be unlikely that [Benckiser] would be thinking that they're going to build this up and exit in 10 years. It's more likely that they are gaining a strategic foothold and thinking very long term."

Caribou, based in Brooklyn Center, will be the third major coffee investment the firm has made. Joh. A. Benckiser this year took a significant minority stake in D.E. Master Blenders 1753, maker of Douwe Egberts coffee. And in July the group announced its intention to acquire Peet's Coffee & Tea, a larger, West Coast version of Caribou.

Peet's had talked merger with other players in the industry through June 2012, but no deal materialized. Its financial adviser then took an unsolicited call from the Benckiser group. Less than two months later they announced the $1 billion deal, and it closed in October.

Caribou, much like Peet's, will end up in the portfolio after first being approached by Benckiser. BDT Capital Partners of Chicago assisted Benckiser and is a minority investor in Peet's and will be in Caribou.

Allen Bettis, a Minneapolis adviser to family businesses and a fan of Caribou, said "one of the first things that crossed my mind was a sense of relief" that Caribou's new owner was a patient investor like this multigenerational family business.

Bettis, whose work includes advising European firms, said the long-term perspective of most family firms also tends to lead them to strong brands that they see becoming closely associated with their family name. That makes investing in the brands a form of investing in their own family reputation.

Peet's origins date to 1966, and Caribou's to 1992. Not a long history compared to Benckiser, but premium coffee retailing is a relatively young market, and both brands have had the staying power and market presence that would be attractive to such an investment group.

The Benckiser group has said it intends to operate both companies and brands.

In addition to coffee, the Benckiser group holds a majority stake in Coty Inc., a fragrance and cosmetics company, which it has owned since the early 1990s. The group also owns Labelux, a luxury goods company with brands such as Jimmy Choo, Bally and Belstaff.

The Peet's and Caribou deals came after the Benckiser group earlier this year took a run at acquiring Avon Products. Benckiser had enlisted other investors in its bid for Avon, including Warren Buffett's Berkshire Hathaway, but it has plenty of capital of its own.

The Reimanns are listed as the fourth-wealthiest family in Germany by the news magazine Der Spiegel. The magazine estimated their assets at 11 billion euros.

But a family business like theirs is not exactly rare in Germany. Gamble's work in Europe included serving as chief information officer of MoellerGroup, a plastics company now in its eighth generation of family leadership.

Within a short drive of his old office in northern Germany, Gamble said, are the facilities of companies like 113-year-old Miele, the premium dishwasher and vacuum maker, and the media giant Bertelsmann, founded in 1835.

"The reach of family businesses in Germany is about the same as it is here, in terms of GDP and percentage of workforce," Gamble said. "But they are much more powerful than they are here. They are a lot more critical."

Gamble said he knows the Reimann family only by its excellent reputation, with no knowledge of the family's plans for its North American coffee assets.

What he does know, he said, "is the Reimann family runs this ship. And they are thinking out ahead."

lee.schafer@startribune.com • 612-673-4302

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