News Column

Acquisition Serves Up Hispanic Foods Holdings

January 9, 2007

The holding company for Don Gilberto Foods, founded in 2004 to serve the lunch meat tastes of the Hispanic audience, has acquired the assets of the bankrupt Reynaldo's Mexican Food Manufacturer for $12.4 million.

Don Gilberto's founder and president, Gilbert de Cardenas Jr., will be CEO of the holding company, Hispanic Foods Holdings, LLC, overseeing the combined operations of Don Gilberto and Reynaldo's.

"Reynaldo's authentic Mexican food products have been selling successfully for over 20 years and have developed a loyal following with a large segment of consumers," Mr. Cardenas said in a release. "We are enthusiastic about the opportunity to take Reynaldo's to the next level through several operating initiatives we are pursuing. The acquisition will also help us significantly expand distribution for our fast-growing Don Gilberto deli meats brand."

The privately held HFC was advised by investment banking firm D.F. Hadley & Co. and that the Huff Alternative Fund provided the equity capital to finance the deal.

Huff is a billion-dollar private equity and mezzanine fund affiliated with W.R. Huff Asset Management.

Reynaldo's manufactures, markets and distributes under its own name a variety of ready-to-eat Mexican foods such as burritos, tamales, chorizo sausage, cheeses such as panela and queso fresco, and desserts like flan and rice pudding.

The company was founded by in 1984 by Joe Garcia, who started in the City of Bell, a Los Angeles suburb, selling American-style sandwiches and dinners to industrial caterers. According to the company biography, he soon expanded to selling Mexican food and by 1988 was selling chorizo. By 2005, the company reported it operated seven processing plants in Southern California and maintained nine warehouse/distribution centers in California, Arizona, Nevada, Utah, Colorado and Texas.

While Joe Garcia and his family still ran the company, it had traded shares on the Pink Sheets market. Mr. Cardenas told that he learned the company was in bankruptcy in early July, and contacted the bankrutcy trustee about buying the assets.

Despite being less than three years old, Reynaldo's acquirer also has deep roots in the Hispanic food business. Mr. Cardenas is the son of Gilbert Sr. and Jennie de Cardenas, who in 1973 founded Cacique, which manufactures and distributes Mexican-type cheeses and creams nationwide.

The younger Mr. Cardenas founded Don Gilberto's after seeing a niche that wasn't being filled by mainstream food companies eyeing the Hispanic consumer. "They depend too much on market surveys from the major supermarket chains," Mr. Cardenas told the New York Times a year after starting the company.

According to the company Web site, "Don Gilberto lunch meats were developed from the ground up, starting with extensive consumer research for the formulation, including superior ingredients and spices that fit the Latino taste profile. ..."

The Reynaldo's acquisition is a big bite for Mr. Cardenas. His Don Gilberto used excess capacity in the U.S. meatpacking indfustry to manufactures its deli meats, allowing the company to operate at a lean 10 employees. On Dec. 1, when the takeover of Reynaldo's was complete, he gained 180 new employees and the plants owned by Reynaldo's.

"He has an excellent reputation and understands many of the niches not being well exploited by other companies out there," said Pedro Garcia, a principal with D.F. Hadley, about Mr. Cardenas. "He sees there's so much opportunity out there to really take more of these categories into more mainstream."

"We see tremendous growth opportunities in the Hispanic food space," said Bryan Bloom, a partner at The Huff Alternative Fund, "and we believe that HFH's strong management and this acquisition effectively position HFH to capitalize on this opportunity. By combining these two brands, HFH will quickly expand its reach with both Hispanic retailers and consumers throughout the Western and Southwestern U.S."

"He's absolutely interested in growing," Mr. Garcia commented.

Mr. Cardenas said he sees expects to see HFH to mostly organically, "but if opportunities arise we'll look at those as well." While the mainstream companies might savor his niche, he said he's confident that his company's understanding of the still-underserved Hispanic market will serve him well.

"We focus. We don't try and be everything to everybody. We focus on one group -- ourselves. It's difficult for a large company to do that."

Mr. Garcia told Hispanic Business that there are "billions of dollars of potential equity out there from investors for these very attractive ethnic markets." It's an area D.F. Hadley knows well, both from deals like this one and from deals made in the all-natural organic foods arena, which Mr. Garcia said shares a lot of traits with the Hispanic foods market.

"We really know who the investors are who are interested in this," he added, "and are talking to a lot of management teams about how to tap this market."

Mr. Garcia also complimented Mr. Cardenas's business savvy. "He can really muster a lot of capital resources for himself, taking advantage of his management expertise and the market opportunities." After using warrants granted to Los Angeles investment bankers Stern Fisher Edwards to launch Don Gilberto, he used Huff to finance his expansion, giving the fund an equity stake in his business.

Source: (c) 2007. All rights reserved.

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