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Quote of the Week: Making it in the US Mid-Market

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October 8, 2012

“It’s the one I love talking about. It’s fun. We just sold it to WellPoint. We made about four times our money in it.”

 

Who said it: Timothy Mayhew, Fenway Partners in an interview on Privcap

 

In Context: Successful private equity investors always make it sound so easy when they talk about doubling, tripling, or even quadrupling their investments by growing revenues or margins in private companies. And so it is with the story of how Fenway Partners made four times its money on in a company with the unwieldy name of 1-800-CONTACTS.  The quote above is the beginning of a Privcap interview, quoting Mayhew’s response to the interviewer’s request that he talk about his firm’s investment in 1-800-CONTACTS, a contact lens retailer that was acquired in June by WellPoint, Inc. one of the largest health benefits companies in the United States. It is reportedly paying USD 900 million for the venture.

According to the interview, contact lenses are a consumer commodity item and yet this mid-market PE firm created value with it. Fenway took the company private in 2007 and kept the founder on board. They improved the customer service, sold the contact lens manufacturing assets and focused on the company’s direct-to-consumer business model. They also improved the website for sell through and achieved a real coup by hammering out a partnership with Walmart, which according to the interview sells about “a third of everything” in US. This gave the contact lens company a “bricks and mortar” component to its web and telephone sales channels. The fourth key to success was figuring out how to sell through mobile devices. Fenway claims that the company now generates 20% of sales through a portable device. To become successful on the mobile channel, the company recruited people that had experience developing apps just for mobile devices, rather than do an acquisition. The last thing the company did to grow the business was enter the eyeglass market, which has a better margin than contact lenses. According to the interview, contact lenses in the United States are about a USD 3.5 billion market, eyeglasses is USD 25 billion.

 

Where we found it: Privcap

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