U.S.-based food distributor completes major acquisition

KeHE Distributors, LLC is a Romeoville, Illinois-based distributor of natural, organic, specialty and ethnic foods to supermarkets and natural food stores across the United States and Canada. Founded in 1952, and now owned by an ESOP, KeHE is the second largest specialty food distributor in North America. In June 2009, KeHE had a unique opportunity to make a transformative acquisition of one of its largest competitors in the natural and organic food space. To accomplish this acquisition, KeHE needed a significant amount of junior capital.

The acquisition financing for KeHE faced several challenges. The size of the junior capital need – $80 million – exceeded the abilities of most middle-market mezzanine investors. The company’s ESOP structure, which also prevented many potential investors from considering the deal, added a layer of complexity that required creative structuring for the junior capital.  Finally, since KeHE was in competition with other suitors, the target’s seller, a publicly traded Dutch corporation, demanded that the buyer have trustworthy financing from an institution with a strong reputation.

KeHE turned to Prudential Capital Group, which not only had the appropriate capital and appetite for the deal but also had been marketing to KeHE for years and knew the company well. In January 2010, the parties closed on a deal of $80 million junior capital. Prudential Capital’s middle-market mezzanine group contributed $60 million of the total, and an established relationship of Prudential Capital provided the balance.