Sale of Fleet Feet stores wins plaudits

vbridges@newsobserver.comMarch 25, 2013 

  • ACG’s Deal of the Year

    The Association for Corporate Growth Raleigh Durham Chapter is hosting its 10th Annual Capital Conference April 2-3 at the Washington Duke Inn & Golf Club in Durham.

    The conference, which includes a panel on the Deal of the Year, is the largest gathering of private equity, mezzanine and investment banking groups in the Carolinas, said Debra Michie, executive director of ACG Raleigh Durham.

    For more information, go to

For years, Tom Raynor planned to turn his Carrboro-based Fleet Feet empire over to his employees. But when the small-business owner learned he had head and neck cancer in 2009, he was no longer sure that was the best option for him or the company.

“(Cancer) did wake me up to the fact there is a lot of things that I want to do,” said Raynor, 62.

As Raynor moved forward with exiting Fleet Feet, a franchisor of specialty athletic retail stores that he built for 19 years, he encountered two major downsides to his original Employee Stock Ownership Plan idea.

The ESOP, a benefit that allows employees to purchase an ownership interest in a business, would have to buy out Raynor’s majority share, which would saddle the company with debt and restrict its growth. In addition, Raynor couldn’t get a large enough one-time payout, he said.

“It didn’t give me a big enough equity event at one single point in time to do the things that I want to do,” Raynor said.

At stake was Raynor’s legacy, along with Fleet Feet and the future of its 96 franchisees.

In the end, however, Raynor decided against the ESOP and instead closed on a deal with Investors Management in June 2012.

The transaction earned the 2012 Private Equity Deal of the Year from the Raleigh Durham Chapter of the Association for Corporate Growth, a nonprofit that seeks to promote business growth and provide resources to related business professionals; the deal will be recognized during ACG’s 10th Annual Capital Conference at Durham’s Washington Duke Inn & Golf Club on April 2-3.

The deal, said Debra Michie, executive director of the ACG Raleigh Durham Chapter, was chosen because it represents deals in the area and involves a middle-market company, with 10 to 499 employees.

“ACG Raleigh has a really strong middle-market focus,” Michie said. “And this deal hit our sweet spot.”

According to an ACG study, from 2003 to 2012, private capital firms completed 994 investments in North Carolina companies totaling $49.7 billion. North Carolina has 721 private backed capital companies, and is one of the most active states in the South for growth equity investment.

From humble beginnings

Founded in 1971, IMC is a private, closely held Raleigh holding company. Its founder, James Maynard, also co-founded Golden Corral, which is one of IMC’s holdings.

Despite a perception that private equity firms buy companies to later sell for profit, IMC’s model seeks to hold on to its partner companies for a long period of time, and generates investment capital through its subsidiaries’ profits and other investments, said Reeves McGee, managing director of IMC.

“We have owned Golden Corral for 40 years,” said McGee. “We are looking for the next 40-years-plus opportunity, and we hope that is what we have in Fleet Feet.”

Raynor acquired Fleet Feet in 1993, when the business included 37 franchisees and two stores.

By 2005, Fleet Feet had moved to its current home base in Carrboro, and had about 60 franchisees and 12 employees. Raynor, who had been reading about ESOPs for years, set up an employee ownership plan fund that would acquire 30 percent of the company in three years.

ESOPs are commonly used to provide a market for the shares of departing owners of successful companies, to motivate and reward employees, or to take advantage of associated tax benefits, according to the National Center for Employee Ownership.

“It’s a way to put the company in the employees’ hands over time, while taking some equity off the table for the retiring owner,” Raynor said.

In 2008, Raynor and two partners added to Fleet Feet by creating and investing in Specialty Retail Development, the retail arm of the company. The venture sought to purchase underperforming and other Fleet Feet stores, along with buying and converting independent stores.

By 2012, Specialty Retail Development had bought 17 Fleet Feet stores, which were bringing in $22 million in revenue, along with paying franchise fees to the Fleet Feet franchisor arm. The two companies together employed about 200 people.

A change in priorities

In 2009, Raynor found out that what he thought was a swollen gland was cancer that had spread to his head and neck.

Raynor no longer has any discernible signs of cancer, but the disease made him realize that he wanted to spend more time with family and friends, he said.

“I didn’t want to be one of those guys that gets carried out of the office feet first with a toe tag on,” Raynor said.

In October 2010, Raynor consulted with David Bass, chief operating officer of Arena Capital Advisors, to help him explore his options for pulling out of his majority ownership in the two Fleet Feet companies.

The franchisor arm had 96 franchisees and nine shareholders. The retail arm, Specialty Retail Development, had 12 shareholders.

“There were a lot of lawyers representing different interests in the deal,” Bass said.

Raynor ended up with three scenarios to consider, including the ESOP, a strategic buyer that was a billion-dollar-plus publicly traded company similar to Fleet Feet, and the sale to IMC.

A key part of the deal was IMC’s willingness to create a structure that gave Fleet Feet’s senior management team some equity participation in the deal, Raynor and Bass said.

Most of the people who owned equity through the ESOP indicated that they planned to use the net cash to contribute to the purchase of the majority shares, McGee said.

Jeff Phillips, president and CEO of Fleet Feet, which now includes the retail and franchisor arms, said while the final goal of the ESOP was not achieved, employees were still rewarded.

Phillips, who had started with Fleet Feet in 2001 in a general manager role, said no employees lost their jobs in the transition and everyone appeared happy with the final resolution.

“I don’t think you would find anyone on the management team, or really in our building that participated in the ESOP, that would at all be disappointed with how this worked out,” Phillips said.

Bridges: 919-829-8917

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