William K. Doyle
Managing Partner

January 31, 2010

Dear Friends and Clients:

As we enter 2010, I am cautiously optimistic that the U.S. economy seems to have weathered the worst of the Great Financial Crisis. A lot of people and many businesses have seen their darkest days in recent years, and I look forward to better news and better times in this new decade.

One close-to-home casualty of the crisis was the firm where I spent the first 14 years of my career: Lehman Bros. However, as I reflect on this event today, the Lehman that collapsed was far different from the venerable firm where I cut my investment banking teeth. I believe that history will appropriately place blame for this financial mess on excesses in the economy as well as the lack of leadership and responsibility at all levels, including government, the financial sector, as well as consumers themselves.

Beyond the data, I also see attitudinal reasons for optimism. In my discussions with clients and friends I consistently hear that we have changed as a result of the Great Financial Crisis. We are more careful. We realize that all trees do not grow to the sky. The wisdom of experience is more valued. And we now seem to be beginning to recognize that some opportunities really are too good to be true. I hope we do not fall back too quickly to our mistakes of the past.

Despite the challenges of 2009, I am very proud of how we as a firm were able to help our clients achieve their objectives through our experience and creativity. As a boutique firm, we had the ability to be nimble in the face of a rapidly changing environment, and because we believe there is no such thing as a “normal transaction,” we were able to customize our approach depending on the specific needs and situations of our clients.

In this context, let me tell you a little about four important assignments we completed in 2009 that exemplify this adaptation and evolution.

• First, we just closed a transaction where we helped Jim Thornton and Doug Foley reacquire the company we had helped them sell five years earlier. That company, LERETA Corp, had withered under its new owner and was caught up in the acquirer’s bankruptcy filing last fall. We helped Doug and Jim buy back the company and essentially re-launch it. While they are currently “up to their armpits in alligators,” it is gratifying to see the enthusiasm of their former employees and customers toward the new ownership and direction. In this case, because of the circumstances, two entrepreneurs were able to get control of a company they knew inside and out, and were able to buy it somewhat under the radar without much competition.
  
  

Kerlin Capital Group, LLC
555 South Flower Street, Suite 2750, Los Angeles, CA 90071 • Telephone 213.627.3300 • Fax 213.627.2134

 

• If LERETA was under the radar, privately held Carlton Forge Works (CFW) was in clear sight. We completed this transaction in October and it was one of the first big deals to come out of the ashes of the market meltdown. We helped the CFW founding family, their related trusts and management sell CFW at an ultra-premium of $850 million to Precision Castparts, a public acquirer. This was an extraordinary two-year journey where we were able to negotiate and exchange information in total secrecy. Because CFW was never for sale, we were able to negotiate a price that reflected the true strategic value to the buyer, and the transaction had very customized terms that met the needs of the family and trusts. This was a transaction that adapted to changing markets.

• A third, smaller transaction that we completed in the summer was for the two owners of a consumer products company. The owners had irreconcilable differences and were in a difficult court fight. Kerlin was engaged by them to sell the company in a court-ordered sale. We were able to find common ground for the sale process, marketed the company and got the transaction done with a buyer who was willing to move quickly and compete the transaction, which had failed numerous times before, on an all-equity basis. By bringing leadership to the process, we were able to get the sale done despite the tough markets and the differences between the owners.

• Finally, early in 2009 we worked with Farmer Bros. – our second transaction together – as they acquired Sara Lee’s direct store delivery (DSD) coffee business. Sara Lee had made a decision to sell the business because it did not fit with their core strategy. For Farmer Bros., whose institutional coffee presence was strong but largely regional, it was a perfect fit. The acquisition nearly doubled Farmer Bros. size and provided important production facilities. This was a very complex situation which began in the early days of the credit crisis and closed in February, so as you can imagine the financing component was especially challenging. Kerlin was involved in all aspects of the transaction including the negotiations, financial analysis, integration planning and financing. We view this as one of the more positive business stories of 2009.

Four remarkable transactions during a difficult year. I’m proud of our team and what we accomplished in 2009, and I look forward to providing our clients with innovative capital and ownership solutions in 2010.

We look forward to speaking with you in the New Year.

Best regards.

Sincerely,

William K. Doyle
Managing Partner