muster. “We had conversations with a number of financial institutions and some just weren’t interested in financing the deal because it was highly leveraged,” says Keith. Ultimately, the majority of the acquisition was paid for through debt–only $17 million of the $95 million purchase price was equity raised through venture capital. Even with the rapid expansion of the ethnic personal care products market, Keith says there was still a need to educate bank lenders about black consumers in order to convince them of Carson’s growth potential.
“I’ve gone to investor meetings where I’ve had to stand up for 45 minutes and try to explain how essential these products are and that black women straighten their hair for more control,” says Keith. “Part of the challenge was getting investors comfortable with the fact that we were marketing to an African-based consumer. The investors recognized that black and white disposable incomes are not equal. They were wondering how women of color were able to buy these products. We were able to show them statistics which prove that black women spend [a significant amount of money] on their hair and there’s no correlation between income and hair care.”
Once Keith and Morningside Capital convinced investors of Carson’s growth potential and that its products could succeed on a global scale, questions arose about the company’s management team and whether it could successfully lead Carson’s growth.
“Strengthening the management capability of the company became a major issue with investors,” admits Keith. In response, he assembled the core of Carson’s current management team to assist in the acquisition process. The
team included Dennis Smith, who was the only Carson veteran retained; Joyce Roche, president and CFO, who previously worked as Avon’s vice president of global marketing; and Brad Creswell, executive vice president of finance and CFO, who had previously worked in Mergers & Acquisitions at Bankers Trust and was a financial consultant during Carson’s acquisition process.
Following the acquisition, Miriam Muley, executive vice president of marketing, who had previously worked at Avon as general manager of its African American Business Unit, was added to the staff. In addition, Creswell (who left Carson to head up his own Seattle-based firm, Northwest Capital Appreciation Inc.), will be replaced by Robert Pierce, who was previously executive vice president and CFO for Maybelline Cosmetics.
According to Sydney DeJongh of the Chicago-based venture capital firm Ark Capital Management, a new management team was a significant factor in Keith being able to pull off such a highly leveraged deal. “Their management team was well received on Wall Street,” says DeJongh. “They took people from places such as Harvard and Avon who had the training. If Carson can get over the initial [expansion] hump, they can become an [ethnic personal care] institution.”
On August 23, 1995, Carson was purchased for $95 million: $83.2 million in cash (raised through a combination of traditional bank debt, private institution funding and venture capital equity) and $11.8 million in junior subordinate promissory notes issued to the Minis family.
A STRATEGY FOR GROWTH
Focusing on the