Rivenrock buys bankrupt toymaker(2)

Rivenrock Capital has bought Small World Toys out of bankruptcy in yet another distressed play amid tightening credit markets.

Small World Toys, whose brands include IQ Baby and Neurosmith, has been acquired out of bankruptcy for an undisclosed amount by a group of its former executives and US private equity firm Rivenrock Capital.

IQ Baby toys

enrock co-founder John Nelson was previously president and chief executive of California-based Small World, but left two years ago. In conjunction with the deal, Nelson will return to Small World as chief executive. Rivenrock’s other founding partner, David Adams, will be chief financial officer. Former chief operating office John Matise, who was also part of the buyout group, will take up that role again.

Small World’s management bought the company in 2004, but it has been unprofitable since. The company reported an accumulated deficit of $24.3 million (€17 million) in its fiscal year 2006 report, and filed for bankruptcy on 3 August amid a global liquidity crisis.

The distressed sector has seen a flurry of activity since credit markets tightened up this summer. WL Ross recently agreed to buy American Home Mortgage out of bankruptcy for $500 million, and last week Gordon Brothers won an auction for bankrupt furniture retailer The Bombay Company. Several firms, including KPS Capital Partners and Oaktree Capital Management, are in the process of raising multi-billion dollar distressed-focussed funds.

Rivenrock targets family owned businesses, particularly those that own real estate assets associated with their business. This is the firm’s second deal since it was founded in November 2004. It previously provided Series A financing for FirePoppy, an online sales platform for niche manufacturers, in December 2004.