Private Equity Case Study. Patti Larchet, CEO Jenny Craig, Inc.

Transcription

1 Private Equity Case Study Patti Larchet, CEO Jenny Craig, Inc.

2 Objectives Overview of Weight Loss Industry Overview of Jenny Craig Go Private Transaction Since Going Private Results

3 Today Patti Larchet CEO and Vice Chair 5770 Fleet Street Carlsbad, CA Ezra Field Managing Director 666 Third Avenue 29 th Floor New York, NY

4 Industry Overview

5 $28 billion Weight Loss Market 10.0% 9.2% Annual Growth Rate 7.5% 5.0% 2.5% 8.2% Total Industry 6.9% 6.9% 5.0% 6.7% 6.4% 0.0% Source: Marketdata Enterprises Commercial Centers Meal Replacements Health Clubs Medical Options Diet Books / Videos Diet Food $2bn $1bn $15bn $6bn $2bn $2bn $2bn Commercial Centers Predicted to Grow to $2.6bn in 2008

6 Weight Loss Spectrum Natural Migration Path (Increasing Level of Investment) Increasing Number of Participants

7 Company Overview

8 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

9 >$100K 4% $25K-$50K 9% Client Profile $75K-$100K 27% $50K-$75K 60% Customer Household Income % % % % % % % 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 Customer Age Source: KSA study income based on Claritas + MapPoint

10 2006 System-wide Sales Canada Company Owned Centres 3.8% Jenny Direct 4.8% US Franchisees 12.2% Canada Franchisees 2.4% Australia/New Zealand Franchisees 9.3% US Company Owned Centres 67.5% Note: System-wide is company-owned and franchised retail sales

11 2006 Revenues Non-food sales Service 2.9% Revenues 7.7% Franchise Food Sales 5.4% Royalties/Fees from Franchisees 1.3% Other Revenue 1.6% Food sales 81.1%

12 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

13 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

14 Centre Network Franchise Centres Company-owned Centres

15 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

16 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

17 Overall Mission for Jenny Craig Evolve the business model to become the weight management program of choice for contemporary women who want to look and feel their best

18 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

19 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

20 Strong Metrics and Client Satisfaction Leads Sales 165% 130% 95% 60% 62% 62% 56% 54% 106% 102% 149% 140% 120% 100% 80% 60% 60% 51% 60% 71% 67% 58% 126% 97% 122% 25% (10)% 8% (3)% 27% 17% 40% 20% 0% 0% 11% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Actives Deposits 1 50% 40% 44% 46% 40% 39% 60% 50% 47% 48% 46% 54% 30% 20% 10% 7% 10% 8% 28% 27% 22% 23% 40% 30% 20% 10% 32% 33% 28% 25% 10% 13% 12% 0% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Source: North American System (company-owned & franchised) 1 Deposits are all payments received from clients.

21 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

22 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

23 Working with our PE Partner

24 Benefits of a PE Partner

25 Overview of ACI Capital Background 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 Investment Philosophy 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

26 Jenny Craig Partnership Our Initial View 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 teammembers needed Reinvestment in center network, IS needed to contemporize brand and offering Significant opportunities to bolster marketing, operations and franchising activities Tremendous growth opportunities Transaction 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

27 Results What We Want 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 What We Got 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