private equity case study - franchise.org · private equity case study patti larchet, ceo jenny...
TRANSCRIPT
ObjectivesOverview of Weight Loss Industry
Overview of Jenny Craig
Go Private Transaction
Since Going Private
Results
Today
Patti LarchetCEO and Vice Chair5770 Fleet StreetCarlsbad, CA 92008760.696.4000www.jennycraig.com
Ezra FieldManaging Director666 Third Avenue29th FloorNew York, NY 10017212.634.3333www.acicapital.com
$28 billion Weight Loss Market
$2bn Commercial Centers Predicted to Grow to $2.6bn in 2008
Source: Marketdata Enterprises
9.2%
8.2%
6.9% 5.0%6.7% 6.4%
0.0%
2.5%
5.0%
7.5%
10.0%
CommercialCenters
MealReplacements
Health Clubs MedicalOptions
Diet Books /Videos
Diet Food
Ann
ual G
row
th R
ate
Total Industry 6.9%
$2bn $1bn $15bn $6bn $2bn $2bn
Weight Loss Spectrum
Natural Migration Path (Increasing Level of Investment)
Increasing Number of Participants
Program Summary• Provides a comprehensive
weight management solution with proven effectiveness
• Combines 1-on-1 counseling with personalized menu plans featuring portion controlled, nutritionally balanced meals
• Services over 110,000 weekly customers, 50% of whom are repeat customers
• Medical Advisory Board
Client Profile• 42 year old, working, married
woman with children and a household income of $70K, who wants to lose 40 pounds, and is interested in healthy and sustainable weight loss
• Participates in Program for estimated 18 weeks and spends approximately $1,535 over a four-year period
$25K-$50K9%
$50K-$75K60%
$75K-$100K27%
>$100K4%
Customer Household Income
13-183%
19-2915%
30-3925%
40-4926%
50-5920%
60-698%
70-793%
Customer Age Source: KSA study – income based on Claritas + MapPoint
2006 System-wide Sales
US Company Owned Centres
67.5%
Canada Company
Owned Centres3.8%
Jenny Direct4.8%
US Franchisees12.2%
Canada Franchisees
2.4%
Australia/New Zealand
Franchisees9.3%
Note: System-wide is company-owned and franchised retail sales
2006 Revenues
Food sales81.1%
Franchise Food Sales5.4%
Service Revenues
7.7%
Non-food sales2.9%
Royalties/Fees from Franchisees
1.3%
Other Revenue1.6%
History - Phase One
1983: Founded by Sid & Jenny Craig
1985: Expanded into US; moved HQ to California
1991: Went public at a valuation of $578 million
Business Summary
• Network of over 600 Centres (429 owned, 209 franchised) in US, Puerto Rico, Canada, Australia and New Zealand
• 98% brand awareness among consumers
Challenges• Series of leadership changes in
2nd half of 90s• Loss of marketing focus / brand
clarity• Not perceived as relevant • Not considered convenient /
flexible• Not seen as affordable• No proof of efficacy• Founder Retiring
History - Phase Two
2002: Taken private by ACI Capital and MidOcean Partners
2003: Invested in program and system improvements
2004: Launched enhanced program and pricing
2005: Kirstie Alley becomes celebrity client; Conversion of Aus/NZ division to Master Franchise
“Evolve the business model to become the weight management program of choice for contemporary women who want to look and
feel their best”
Overall Mission for Jenny Craig
Key Initiatives Since Going Private• Strengthened Management Team• Updated Program• Introduced Loyalty Program• Introduced New Franchise
Economic Model• Implemented Franchise Advisory
Council• Master Franchised Australia/New
Zealand
Key Accomplishments• Strengthened Brand Consideration• Increased Consumer Loyalty• Proved Efficacy• Implemented Effective Celebrity
Strategy• Improved metrics, customer
satisfaction ratings and attribute ratings• Improved leads, retention and sales
Strong Metrics and Client Satisfaction
Source: North American System (company-owned & franchised)1 Deposits are all payments received from clients.
LeadsLeads SalesSales
ActivesActives DepositsDeposits11
8%27%
62%
106%
149%
(3)%
62%
102%
54%56%
17%
(10)%
25%
60%
95%
130%
165%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
0%11%
51%58%
97%
122%
71%
126%
67%60%60%
0%
20%
40%
60%
80%
100%
120%
140%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
7%10%
22%27%
44% 46%
8%
23%
40%39%
28%
0%
10%
20%
30%
40%
50%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
10%13%
28%33%
54%
46%
32%
48%47%
25%
12%
0%
10%
20%
30%
40%
50%
60%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Current Strengths• Leading Player in the Industry• Strong Brand Equity and Customer
Demographics• Superior Customer Loyalty• Proven Efficacy • Attractive Industry Fundamentals, with
Powerful Demographic Trends• Positioned for Continued Growth in
Revenues and Profitability• Attractive Financial Model • Strong Management Team
Future Opportunities
• Jenny Craig successfully stabilized and growing again
• Entering the next stage in its development– Identified initiatives could double the
size of the Company within 5 years • International development
– World Health Organization estimates 1.7 billion people worldwide who are obese or overweight
– The EU is a natural market for expansion
– Untapped potential in Latin America
• Alternative investment firm with 50 year history of partnering with middle market businesses
• Organized to manage capital on behalf of high net worth families and institutions
• Long term investment focus with particular emphasis on helping growing businesses expand their reach
• Focused on companies with between $50 and $500 million in revenue
• Experience with both franchisor and franchisee operations
• Strong Companies: Find businesses with strong brands and/or defensible market position
• Contrarian Approach: Willing to work through company or sector issues, transaction complexity
• Partner With Management: Align incentives between investors and management and reward success
• Conservative Capital Structures: Focus on building the business not meeting financial covenants
• Create Value: Constructive board role; bring resources, experience to the table; investors not managers
Background Investment Philosophy
Overview of ACI Capital
• Strong brand with 98% awareness• Missteps in late '90s led to loss of
brand clarity, decline in profitability• Restructuring in 2000 had
stabilized the business • Founder/CEO retiring; new team-
members needed • Reinvestment in center network, IS
needed to contemporize brand and offering
• Significant opportunities to bolster marketing, operations and franchising activities
• Tremendous growth opportunities
• Purchased Jenny Craig with its founders and DB Capital Partners (now MidOcean) in May 2002 for $115 million in cash
• Equity ownership– ACI and MidOcean 83%– Craig family 17%– New management options 10%
• Invested significant resources working with management:– Sharing ideas– Developing rapport– Bringing resources – Assisting in strategy,
operations, and finance
Our Initial View Transaction
Jenny Craig Partnership
• Strong business with solid franchise• Strong managers • Healthy corporate culture• Aligned incentives• Team committed to take (return)
the company to the next level• Substantial growth opportunities• Ability to add unique value
• Leading brand in weight loss sector• Strong core team that we were able
to bolster with key additions• Committed, passionate employee
base that believes strongly in the brand and company
• Management team committed to reengineering the brand, business
• Aligned team very receptive to dialogue with board on strategic and operational initiatives
• An incredible business, a great investment, and relationships and experiences we’ll cherish forever
What We Want What We Got
Results