US peanut recall affects private equity firms

Portfolio companies of several private equity firms have had to recall products after salmonella contamination forced the nationwide recall of 1,800 products this month, costing companies millions and driving Emigrant Capital-backed Forward Foods into bankruptcy.

Several private equity-backed companies have been forced to recall peanut products that have links to the company at the center of the US salmonella outbreak that has left hundreds ill and has been linked to nine deaths.

Forward Foods, a portfolio company of Emigrant Capital, fell victim to the recall when it collapsed into bankruptcy Tuesday, unable to sustain losses resulting from pulling its products from stores.

Forward Foods’ main product was the Detour brand of protein snacks, some of which used peanuts from Peanut Corporation of America.

Peanut Corporation issued a nationwide recall of its peanut products earlier this month after hundreds of people fell ill with Salmonella poisoning linked to several of the company’s plants. Nine deaths have been linked to the company. Also, more than 1,800 products have been recalled.

“The cost of this recall to the business of the debtor is material,” Patrick Muldoon, chief executive officer of Forward Foods, said in bankruptcy documents. “A significant value of inventory must be condemned, and to the extent customers are appropriately destroying or returning unsold recalled product, the ability to collect outstanding receivables is very much at risk.”

An Emigrant-led investment group created Forward Foods in 2006 after buying the protein bar assets from a group of companies including Next Proteins. The assets were purchased with about $10 million of debt, and $12.8 million directly from Emigrant, according to court documents.

Emigrant has contributed another $6.2 million to Forward Foods since the original purchase. The company listed assets of $21.3 million and liabilities of $25.4 million in its Chapter 11 filing.

Emigrant, based in New York, invests in mid-market companies.

Several other private equity-backed companies that offer peanut products have been affected by the nationwide recall.

Whole Foods Market, a public company with significant private equity backing from Leonard Green & Partners and The Yucaipa Companies, has had to recall more than 70 products from different stores. Whole Foods said its supply chain is diverse and includes many different vendors, so a product recalled at one store may not be recalled at a different store.

Atkins Nutritionals, the company based on the “low-carb” dietary philosophy of Robert Atkins, voluntarily recalled four products that included pieces of peanuts from contaminated facilities.

Atkins is owned by private equity firm North Capital Partners, which bought the company out of bankruptcy. Atkins had been owned by Parthenon Capital and Goldman Sachs, which acquired the company in 2003 for $533 million.

Promax Nutrition, a maker of high-protein snacks, voluntarily pulled six types of bars as part of the recall, and several other types of bars that have expired but may still be on store shelves or in customers’ possession. Promax was purchased in 2006 by private equity firm Marwit Capital.