In only a few years, Samy Salon Collections became the top-selling hair-care brand on the Home Shopping Network, reaching consumers across North America, Puerto Rico, Europe, and Mexico.
Television orders for the collection, developed by charismatic salon owner Samy Suárez, drove sales for the South Florida company from $200,000 its first year to about $12 million in 2003.
That rapid growth left Samy Cos. Inc. cash-poor. Company co-founder and CEO Luis Delgado knew working capital was needed to sustain the firm's growth while it engineered a strong push into retail locations that would allow it to compete more aggressively in the $6.6 billion U.S. hair care market.
Ultimately, a six-month search for capital by Mr. Delgado resulted in an approximately $6 million investment from Hispania Capital Partners early last year.
Along the way, he picked up a few lessons in the difficulties of finding funding. "Let me tell you," Mr. Delgado says now. "It's a challenge to get private equity."
Mr. Delgado says he began his search at traditional financial institutions, such as commercial banks, but asset requirements were difficult to meet. In a bid to find other funding, he turned to networking – a neighbor who was a former banker at Goldman Sachs, business associates, and others – and the Internet. Then he picked up the phone and began pitching.
Mr. Delgado crafted a 25-page PowerPoint presentation outlining the company's growth strategy. "We had what we call a realistic plan and didn't tailor it to any particular audience," he says. "Generally, we pretty much knew where we wanted to go."
Samy Cos. primarily sought funding for a print advertising campaign to create buzz among consumers and retail chains, which want to see a firm's commitment before stocking a product. More money for marketing likely would be needed even after the products made it onto retail shelves, as the ads in weekly sales circulars often are paid for largely by the companies whose products are advertised.
After speaking with several potential investors, Samy Cos. would consider, and be considered by, five investment firms – all of which had been referred to Mr. Delgado by business contacts. The big question in his capital quest quickly became what percentage of the company investors would receive in exchange for their cash infusion. Mr. Delgado and company officials quickly ruled out a firm seeking a controlling interest. In meetings with other firms, he grappled with high growth expectations: "They're not looking for 6 percent; they're looking for 25 to 30 percent."
Other factors also came into play. With some potential partners, Mr. Delgado says, "I don't think there was ever a real connection or desire to learn the business."
But there was an exception: Victor L. Maruri, a partner in Chicago-based private equity firm Hispania Capital Partners. Mr. Maruri's phone rings daily with companies eager for capital. Mr. Delgado was one of those callers.
"The first thing he says is, 'You've probably never heard of Samy,' " recalls Mr. Maruri. But that wasn't the case. "When I first heard of the Samy Companies I was channel-surfing. My fiancé owns a Hispanic ad agency and said, 'You've got to look at this.' "
Impressed with the charisma of the Miami salon owner, who gained fame in the 1980s as a stylist for singer Gloria Estefan, Mr. Maruri remembers being intrigued. When Mr. Delgado called, it was enough to rekindle that interest. Within a day, he had e-mailed his business plan to Mr. Maruri.
"I think what struck me the most was that [Samy Cos.] had achieved sales in the range of $10 million without really using the Samy personality within the Latino market," Mr. Maruri says. After reading the company's business plan, Mr. Maruri had another thought: "They were conservative [in their projections]."
Mr. Delgado soon went to Chicago for meetings with Hispania Capital Partners. The match seemed ideal. "He was approached by other private equity firms," Mr. Maruri says of Mr. Delgado. "[Their] pricing was comparable; we were certainly not the highest. But he felt more comfortable with us. I think a lot of it has to do with our focus on the Hispanic market, and a lot of it has to do with chemistry."
According to Mr. Delgado, Hispania Capital seemed ready to become more than just an investor. "Of all the businesses we looked at, it was just their understanding of the vision of this business."
Still, for Mr. Delgado, negotiating the intricacies of the deal – essentially a full-time job in itself – was difficult while continuing to oversee the day-to-day operations of the 30-employee company. "The last month I did nothing but work on the transaction," he recalls.
And there were governance issues, something of a shock for independent entrepreneurs who now have executive compensation tied to performance and must obtain investor approval for other matters. "It's a whole different world," Mr. Delgado admits. "Now there are quarterly board meetings, and detailed rationales must be provided if projections aren't met."
"Now your employees know there are two bosses," he adds.
But Mr. Delgado reports the company is making progress in its retail strategy. This year he estimates Samy products will be sold in about 16,000 U.S. stores – including outlets such as Target, Walgreens, and Wal-Mart – up from about 5,000 last year.
The company also plans to widen its distribution into Central America and launch a salon franchise. Mr. Delgado envisions a future for Samy Cos. that might include product lines such as skin care, fronted by other personalities as large as the salon products' affable pitchman and creative director, Mr. Suárez.
"We can have five Samys in different lines," Mr. Delgado says.
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