Twinlab: The End Of An Era
Examining the benefits of acquiring a bankrupt brand in the nutraceuticals space.
By Adam Ismail
The era of Twinlab as an independent company seems to be coming to an end. The company filed for Chapter 11 bankruptcy protection a few weeks ago in hopes that it would help the company continue to operate while it negotiated a sale of its assets to IdeaSphere. The company negotiated a $31 million line of credit with CIT Group that would provide it with enough cash to fund operations after the filing. This deal is kind of unique in the natural products space in that we do not see many bankruptcy acquisitions take place.
IdeaSphere itself is a unique company. Its management includes a number of highly successful businessmen who have grown national brands, including Dave Van Andel, whose family founded Amway, Bill Nicholson, the former chief operating officer at Amway, Anthony Robbins, the international self-help guru, Mark Fox, who helped lead DuPont’s consumer health strategy and Peter Hoyt, who manages a $1.5 billion hedge fund. So what do these highly successful individuals see in a troubled company like Twinlab? What they see is a strong brand and a chance to buy it at a cheap price.
Why would Twinlab have such a strong desire to sell? Well, it has always been a family business. In fact, its name comes from the two twin Blechman brothers who were born around the time their parents founded the company. As a result, there is a strong legacy associated with the company and the family would probably like to see that continue.
There are a number of advantages to acquiring a company out of bankruptcy, especially when you have a motivated seller like the Blechman family. When you are in bankruptcy, management still has a lot of control over its assets and can sell any of them at any price no matter how much the creditors object. The law is so strong on this point that even if the U.S. government puts a tax lien on a piece of property, the management can sell that piece of property free of the lien and there is little the government can do about it. The judge can step in and say the purchase price is unreasonable, but this is very rare. Twinlab, however, is not out to punish its creditors as it has negotiated a $65 million purchase price with IdeaSphere, which will likely all go to its creditors. The company had $108 million in debt back in May, some of which will be assumed by IdeaSphere for continuing the operations at Twinlab. This means that on average debtholders will probably receive a little more than 60% of their money back. For IdeaSphere, they get to acquire a company with a strong brand that it feels it can return to profitability, especially since it will no longer have the burden of $108 million in debt on its shoulders. So in this regard, the deal works out very well for both Twinlab and IdeaSphere, and all is not lost for the debtholders either.
Not everything about acquiring Twinlab from bankruptcy is perfect though. There is a bit of strategy involved in the process as well. The bankruptcy court can reject the bid, but this generally only happens when there is a higher bid on the table. If that happens, the court conducts an auction for the company and any number of bids can come in and upset the process. Twinlab disclosed during the months leading up to the bankruptcy that it was in discussions with a number of parties about an acquisition, so there is still a chance that one could upset the process.
The other risk for IdeaSphere is whether or not they can get Twinlab back to a profitable operating position. Even before it paid the interest on its debt, Twinlab still lost $3.3 million on $37.7 million in sales during its first quarter this year. The results are a little mixed because of the effects the ephedra controversy had on Twinlab, and it may well be that free of ephedra Twinlab will show much better numbers. However, that remains to be seen.
The closing chapters of the Twinlab acquisition will certainly be interesting. As we went to press, the company already received the judge’s approval to use some of its new credit line to fund its operations and business is slowly getting back to normal. When all is said and done, this will be a good case for anyone interested in acquiring a bankrupt brand in this space.NW