Stumptown's private equity deal - Page 2

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Intrepid510

#11: Post by Intrepid510 »

geoffbeier wrote: That said... this reporting of the same development is much more amusing to read. As far as I can see (as an outsider reading nothing but the article Marshall linked and this article from the NYT) most of the Willamette Weekly's information seems to come from a pundit (and competitor) with a strong disdain for Stumptown. My googling tells me that the Willamette Weekly is a funny little tabloid very similar to DC's own City Pages.

Which is more credible: A tabloid's reporting of comments from a competitor who has repeatedly voiced disdain for Stumptown, or the NYT's reporting based on interviews with both the investor in question and the principal who is alleged to have sold the business? I'm reserving judgement, but the fact that the main source for the negative noise is both a competitor and a longtime noisemaker does color my opinion just a bit.
First, I wouldn't consider the Willamette Weekly a tabloid, having lived in Portland for sometime and picking it up almost every week I would think I have a good gauge for what it is. More of just a special interest sort of thing, typically one big story for the week and then a lot of other little things around it.

That said you are right it appears that they put a lot of stock into one source. However, the nytimes blogger had another post where other roasters corroborated his statement that this private equity firm approached others besides Stumptown. So perhaps while you don't think this guy is credible, he might end up being like Jose Canseco and steroids in your perspective.

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another_jim
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#12: Post by another_jim »

It's not a crime to lie to the press; it is a crime to lie on corporate filings. So the statement that the private equity guy is not the real CEO and owner, but just listed as such "in the paperwork," seems to me to be complete BS. Most likely all this means that Duane Sorenson will continue running Stumptown day to day; but that he's no longer either the majority owner or the CEO.
Jim Schulman

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TrlstanC

#13: Post by TrlstanC »

I think this really comes down to whether the private equity fund is investing in Stumptown because they value their name/reputation, or because they value their management/experience? Stumptown probably has some value in their leases/real estate/equipment, but those types of assets aren't going to deliver returns that would attract PE money.

It could be that the investors saw a company that's well known in the specialty coffee world, that they expect to expand, and they think that the value of the name/branding will really increase. This probably isn't a great scenario, but it could result in something like a chain of starbucks competitors on a smaller scale, which wouldn't be the worst result.

Hopefully it's a case where the management of Stumptown had a lot of plans to expand their business but didn't have the capital to do it, and the investors saw value in their business plan. This would mean that we'd get more Stumptown coffee and locations than we would've otherwise. Which is probably a good thing.

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SlowRain

#14: Post by SlowRain »

I think it's being reported that this private equity guy wanted to buy up and merge a number of well-known and well-established coffee roasters/shops. His motive is obvious.

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the_trystero

#15: Post by the_trystero »

TrlstanC wrote: Hopefully it's a case where the management of Stumptown had a lot of plans to expand their business but didn't have the capital to do it, and the investors saw value in their business plan. This would mean that we'd get more Stumptown coffee and locations than we would've otherwise. Which is probably a good thing.
I'm just far too cynical to see it this way. I can't think of any of my favorite food or beverage companies who have gotten better after investment/expansion.
"A screaming comes across the sky..." - Thomas Pynchon

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drgary
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#16: Post by drgary »

It's not that Stumptown doesn't have worthy competitors, as I recently discovered when comparing their cafe to others in Seattle. The good news here is that Duane Sorenson has apparently achieved his exit strategy and is benefiting from the fruits of his labor. He and the people he trained are doing the specialty coffee business very well. If the company doesn't maintain its standards, key people will leave and will migrate to other ventures or start new businesses where they'll maintain high standards. Or, they may all surprise us and grow Stumptown with quality. I agree that that would be an exception to the usual outcome of ownership changes destroying acquired companies.
Gary
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arriflex

#17: Post by arriflex »

Big article in the NYT today:

http://www.nytimes.com/2011/06/08/dinin ... iness.html
TSG Consumer Partners, which buys stakes in brands like Terra Chips, Vitaminwater and Smart Balance to turn them around for a big profit, recently made a major investment in Stumptown Coffee Roasters of Portland, Ore., one of the most admired companies in the field, and has met with most of the top boutique coffee companies, including Blue Bottle Coffee, Counter Culture Coffee and Joe.
Worth a read.

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another_jim
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#18: Post by another_jim »

That's kind of scary -- he's approached a lot of the top roasters to make them part of some sort of 3rd wave investment fund. If I were an investor in such a fund, would I make more money funding each roaster's expansion, or would I make more by using the fund to turn each name into a well publicized brand?
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Peppersass
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#19: Post by Peppersass » replying to another_jim »

The latter. Speaking as a former entrepreneur who exited to a public company, a current angel investor (maybe not for much longer), founder/managing director of an angel group (ditto), and a senior fellow/regular speaker on venture investing at the local high-end business school, I can tell you that investing in a single business is much more risky than diversifying across a number of businesses. The success rate in venture capital is on the order of 10%-20%. For example, out of 10 investments, you'll get one home run, a few mediocre performers, a few walking wounded, and the rest will be a total loss. The odds are lousy, so you have to diversify the risk. And these days VCs and PE firms don't invest in startups. We're talking about going concerns.

It doesn't help that VC returns over the past decade have been negative due to the .com bust, easy money (too many $ chasing too many bad deals) and the financial meltdown. There are differences between VC and PE, some of which have to do with control, but more significantly the PE 10-year numbers are probably better because they were able to get massive leverage at bargain prices. It's still high-risk money when you buyout small, privately-held companies. I think we've only begun to hear about the failures of PE deals from the past decade.

Anyway, we don't know what TSG's strategy is. I would doubt that they're creating a fund of high-end coffee roasters/cafes and building each brand. Seems more likely that they're trying to "roll up" multiple respected brands into a single company that they will then commercialize ala Starbucks. Of course, they can and probably will flip it to another PE firm, the public markets or even Starbucks before we see new cafes on every street corner.

The PR wasn't handled very well, but that's probably because Sorenson isn't experienced in these matters and got caught with his pants down. If the deal hadn't closed yet, it may have been technically correct that he still owned Stumptown when the question was asked. My guess is that he was in the process of meeting with all his employees to reassure them and tell them how their lives would be better. I did that once, back when I was young and naive...

This is kinda sad, as I've just received two really fine Ethiopian SOs from Stumptown. The coffees are great and the buying experience was excellent. Great people at Stumptown. It's virtually impossible to maintain quality like that when a business changes hands and/or expands dramatically. After nearly 30 years in business and 15 years in venture investing, I've become quite cynical about the effect large amounts of money have on human beings.

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shadowfax

#20: Post by shadowfax »

Duane Sorenson posted a note about the deal this morning. Seems a little vague on confirming details (who the investors are, who now owns the company, etc.), but does confirm that Duane is still running operations.
Duane Sorenson wrote:June 8, 2011 -
"At a time when it's difficult to find the financing to grow, run and operate a quality driven and sustainable business, I am pleased to announce that Stumptown has found an investor to help us offer opportunities and take care of our employees, farmers and customers like we've never been able to do before. I have been lucky enough to find an investor that will enable me to continue to run Stumptown and focus on the coffee.

While Oregon's economy struggles and the unemployment rate is staying high, we're looking forward to employing more talented and creative people to help us grow and stay focused on the highest quality coffee and the service we are known for. After all, the success of Stumptown comes from the awesome individuals we have and the strength of our team.

Stumptown will continue to be about the coffee and the relationships we have - with our employees, our farmers, our customers and all the folks looking for the finest coffees available. Aleco, our head coffee buyer, now has more resources to find and work with the absolute best coffee farms and farmers in the world. We're excited to continue to roast and prepare the finest coffees, support the neighborhoods where we do business and the countries where we purchase our coffees from.

A huge thanks to all our amazing staff for working hard every day and making sure that our coffee is perfect every time. We're also excited and proud to continue to work closely with some of the finest restaurants, coffee bars and specialty grocers around."

- Duane
Nicholas Lundgaard