TSG Casts Larger Net Across Wider Range to Catch Consumer Brands
TSG Consumer Partners, a pioneer in consumer-focused deals, is looking further afield for fresh opportunities as globalization reshapes shopper behavior and brands.
Founded in 1987, the San Francisco firm has been an early backer of some of the buzziest consumer brands, such as Famous Amos cookies and Smashbox Cosmetics. As it looks to invest a new $4 billion fund, TSG wants to buy bigger names and apply its playbook of partnering with entrepreneurs to more overseas companies.
"Almost all of our companies are innovators and upstarts in some way, either in creating a new category or creating a value proposition that's disrupting an existing category. That's never changed," said Jamie O'Hara, president of TSG who joined about 20 years ago from consulting firm Bain & Co.
As more consumers discover products through digital or social media channels and buy those products online, brick-and-mortar strategies and physical borders are becoming less relevant, said Hadley Mullin, senior managing director at TSG. Brands that can engage with shoppers digitally and respond quickly to changing trends are thriving.
"We think there's an opportunity now to access the global consumer that was much more difficult five, 10 years ago," said Ms. Mullin. "Borders seem more and more porous given how digital the world has become. Borders are meaningless when you're sharing beauty tips. You can download a Youtube video just about anywhere in the world."
TSG is betting that digital transformation is creating more opportunities around the world and wants to look overseas. For instance, in 2017,the firm took a minority stake in Huda Beauty, a cosmetics brand launched in Dubai by entrepreneur Huda Kattan. With TSG's support, Huda has focused on expanding product lines and distribution as it builds its digital community of customers around the world.
Over the last three years, TSG has backed five overseas deals. The firm in March opened its first international office in London, and tapped Colin Welch, a TSG partner and managing director who previously led investment bank Financo LLC, to guide the effort.
International expansion is a natural evolution for TSG, which has successfully broadened end markets beyond its roots in food, beverage, personal care and household goods. Today, the firm invests across the entire consumer-products spectrum including beauty, e-commerce and franchisers, among others.
The firm's investments have gotten bigger, too. Through TSG8, it will write equity checks ranging from $100 million to $800 million. The average amount will sit between $250 million and $275 million, up from TSG7's average of $200 million. TSG expects to deploy its eighth fund in about five years and back a total of around 12 to 14 deals.
Still, competition has been rising across the consumer sector. Cash-rich strategic buyers are scooping up small, niche brands at high multiples for growth, while a crop of consumer-focused firms continues to emerge. Some of these newer entrants trace their roots partly to TSG, including VMG Partners and Alliance Consumer Growth. Other buyout firms are also expanding their consumer arms, as evidenced by Eurazeo's launch of Eurazeo Brands, a consumer-and-retail investing specialist.
But TSG is confident it will continue to capitalize on opportunities in the U.S. as it builds scale and relevance in international markets by doing what it does best: partnering with founders and helping them invest in growth strategies.
"We act like service providers and independent board members and not like control investors even when we do control businesses," Mr. O'Hara said.