More Than Money: New investor can help Cyrk in numerous ways.
The Yucaipa Companies is best known in the grocery industry for its participation in chain acquisitions, having been involved in 16 deals valued at $30 billion. The company ended up with five percent of Cincinnati-based food giant The Kroger Co. after Yucaipa-owned Fred Meyer Inc. merged with Kroger earlier this year.
Yucaipa is now investing $25 million in promotion agency Cyrk, Inc. in exchange for preferred stock, and has a warrant to buy an additional $15 million in shares that would make it Cyrk’s largest shareholder with a 23-percent stake.
Cyrk sees Yucaipa’s food industry holdings and its “extensive knowledge of consumer products and packaged goods” as just one potential advantage to the recently announced partnership, a spokesperson says.
A public company since 1993, Gloucester, MA-based Cyrk has other reasons to love privately owned Yucaipa, whose investment will provide working capital and help fund acquisitions and internal growth. The deal has the potential to strengthen Cyrk division Simon Marketing’s already tight relationship with McDonald’s: Yucaipa purchased a stake in Golden State Foods, the chain’s largest food supplier, in 1998.
“We are hopeful that, through an association with Yucaipa, Cyrk and Simon Marketing can provide additional value-added services to McDonald’s (as well as to Cyrk’s) other clients,” says Yucaipa managing partner Ronald Burkle, who replaced Patrick Brady as Cyrk’s chairman after the investment deal was reached.
Another plus is Yucaipa’s Internet investments. It is part-owner of Alliance Entertainment Corp., a music and game distributor that has been developing Web sites, and recently invested in CheckOut.com, an entertainment site where fans interact with celebrities.
Cyrk’s fledgling Internet division helps clients develop Intranet catalogs, and designed and manages the gear program and online store for Web portal Yahoo Inc.
Cyrk also stands to benefit from Yucaipa’s management prowess, which has produced “a strong history of increasing profitability and shareholder value,” Cyrk said in a proxy to shareholders. Cyrk will pay Yucaipa $500,000 a year for five years to get business consultation and management services.
Yucaipa gains three seats overall on Cyrk’s seven-member board. Brady and Simon ceo Allan Brown will function as co-chief executives of Cyrk, Inc.
Cyrk didn’t have a pressing need for cash, says a spokesperson. But it can’t hurt to have an ally with deep pockets, especially one with industry connections.
