“Every deal dies a few times before it actually gets done,” says Taylor Fish, Partner at private investment firm Camano Capital. That rings especially true when you throw the complexities of a cross-border transaction and a global pandemic into the mix.
Middle Market Review recently sat down with Taylor to get the inside scoop on their recent acquisition of UK based E-Cloth, a consumer cleaning company that manufactures high-quality microfiber cleaning products.
MMR: Taylor, thanks for sitting down with Middle Market Review. Tell us about Camano Capital and your role at the firm.
TF: Camano Capital was founded in 2018 around the thesis of partnering with small, growing consumer brands that may be overlooked by other institutional investors, whether due to size, or some other characteristic (e.g. customer concentration). Camano’s objective is to partner with these smaller consumer brands, invest time and capital, bring in strategic resources to grow, and work to grow and diversify the businesses for the next best buyer. We have three partners with offices across Seattle and Minneapolis, with a mix of operating, investing, credit and investment banking backgrounds. The key underlying theme is that we all have a passion for working with these small businesses to build and scale them over time.
I am a Partner at Camano, focused on new deal evaluation, portfolio management and business development.
MMR: Your firm has a unique membership-based relationship with your LPs. Tell us how it differs from other independent sponsors raising capital on a per deal basis?
TF: Good question. Camano fits somewhere in the middle of a committed fund and fully independent sponsor. As you mentioned, we have a membership model, in which our investors pay an annual fee to be a part of the Camano investment group. The annual fees allow our investor partners to review all of the deal opportunities we bring to the table. They then have the opportunity to opt in for their prorata share of the equity, or they can opt out if the deal doesn’t interest them. We view our model as very LP friendly, in the sense that it allows our investors to participate in deals they are interested in and passionate about, rather than be in the purely passive role of an LP at a traditional fund. Additionally, as another benefit, our structure credits these fees to the investors capital accounts for any deal that they invest in, and thus the fees become part of their investment and is returned to the investor at a future liquidity event. While still early in our firm’s life, we think this model provides an attractive investment vehicle for investors.
MMR: Do your Investors get involved in operations post-investment?
TF: Our Investor partners have the ability to get involved if the portfolio company aligns with their interests and expertise. Our investor base includes a wide range of high net worth individuals and family offices, with varying interests and expertise, so the desire for a deeper role varies. As we look at new opportunities, we try to tap into our network for specific expertise that we think can be additive for the growth or development of the business. Whether that’s specific to the industry niche (e.g. specialty beverage) or their specific skill set (e.g. E-Commerce marketing expertise), we try to align our investors’ time and capital in opportunities where there is opportunity for value creation. That said, there is no expectation that our investors be involved in our portfolio companies post-close. We simply try to tap into embedded expertise when it makes sense for the business or consumer niche. We think this brings the added perk of more investor engagement.
MMR: Camano acquired E-Cloth in August of this year. What does the company do and what was the thesis that ultimately drove the decision to make the investment?
TF: E-Cloth is a growing consumer cleaning company, focused on providing high quality microfiber cleaning products that offer safe and sustainable cleaning performance utilizing just water and no harsh chemicals. In cleaning products, by far the most important characteristic is cleaning efficacy. Everything else takes a back seat to whether the product works as advertised. This was a huge aspect of why we got so excited about E-Cloth. The products work, and they work by just using water – no need for harmful chemicals in day-to-day use. Our interest in E-Cloth started with the value proposition of safe, highly effective cleaning, and, as we dug in, we felt the affordable price (value) and long-lasting construction (sustainable) were characteristics that resonate with every day consumers and will continue to drive value in the long term.
The other major component of the investment in E-Cloth was the Company’s CEO, Jamey Bennett. Jamey is a veteran in the CPG space, having built and scaled multiple CPG companies over time. We feel that his experience, passion for the business, and expertise are a perfect match for us and E-Cloth. Given E-Cloth has significant opportunities to expand in both retail and through E-Commerce channels, Jamey’s background and experience cemented our interest and has us very excited to grow the business.
MMR: Walk us through the deal timeline from when you first discovered the deal through closing.
TF: We were first introduced to the deal through the Axial network, in December 2019. We were immediately intrigued by the brand, the market positioning and the size / growth profile of the business. The business “checked all the boxes” for a Camano partner company, so we pursued it fairly aggressively through December and January. We met with Jamey (CEO) multiple times and worked through the IOI and LOI bid dates. We signed the first LOI in mid-February, and jumped into due diligence. We made good progress through due diligence, but by mid-March the global pandemic started impacting the deal. While this helped all businesses in the cleaning segment, it did complicate our deal process due to our inability to visit on-site in the U.S. and U.K. It also complicated the capital markets, both with our investor group and credit providers. We were in the midst of engaging with our investor base and multiple credit partners as the pandemic spread, so we had to get creative to help round out the structure. Ultimately, we found the right partner in Tonka Bay Equity Partners, a group I knew well and which aligned with our goals for E-Cloth. The deal took a few other twists and turns from that point onward, but we were able to work through it with the help of Jamey, Tonka Bay, and Consensus Advisors (investment bank representing E-Cloth) to get the deal done.
MMR: How did Covid impact the deal process? Was the deal ever at risk of getting done?
TF: Every deal dies a few times before it actually gets done. E-Cloth was no exception! COVID definitely played a part in the ebb and flow of the deal, but we were able to work with the Sellers to continue to push through the challenges COVID presented. The deal was complicated relative to its size, due to the cross border characteristics (Company was founded in the U.K.), a unique seller structure and the global pandemic. We were fortunate to have spent a fair amount of time with Jamey, the CEO, prior to the shutdown, so we were comfortable with him and the U.S. operations. Uniquely (relative to pre-COVID), we were not able to visit the U.K. operations and meet the team prior to the COVID travel restrictions, so we were forced to get creative for on-site visits and communication with the team over there. We were able to utilize a few of our U.K. advisors to help us validate the operations and facilities, which gave us comfort without seeing the operations in person. Fortunately, the business is not overly complicated from an operational perspective, so we were able to gain comfort on the business and get to closing.
MMR: What deal making trends do you anticipate transpiring as we head into the last quarter of an eventful 2020?
TF: Similar to most folks, we expect to see a strong push of new deals through the end of the year. This year has been wholly unique, but the typical cadence of a fall push of new deal flow, with the goal to close before year end, will hopefully add a bit of normalcy to the end of 2020. I’m sure COVID will continue to throw us some curveballs, but we expect Q4 to be strong from a deal flow perspective.