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Sun Capital Finds Profit in Cotton

The turnaround specialist has steered portfolio company Frontier Spinning Mills into record revenue and EBITDA growth since investing in the business in 2008

Graham Winfrey

Sun Capital Partners has been working on a financial turnaround of a company that is based on a simple premise – the idea that no matter what the economy does, people are always going to need underwear.

Sun acquired North Carolina–based Frontier Spinning Mills, which produces cotton yarn used for making products like socks, underwear and sweatpants, in March 2008.

At the time of the acquisition, Frontier was being hammered by the sliding markets. “Sales were depressed [and] the company itself was struggling because it had never gone through a severe downturn,” chief executive officer John Bakane told Private Equity International.

Even worse, the macro view of the overall textile industry in the US was not good. There was a general feeling that the textile business in the US was dead, according to David Finnegan, a managing director with Sun Capital.

“We didn’t feel that was the case,” Finnegan said. “We thought there was a huge opportunity with Frontier because of its strong market position, potential for enhancing the company’s operation, and key customer relationships in place.”

The attractiveness of Frontier was simple. It was unlikely the economy would ever get so bad that people would stop buying underwear, sweatpants and other cotton–based products.

Sun brought in Bakane to run Frontier and he implemented new measures for growing the business. Bakane came with experience in textiles, having formerly worked as CEO of denim company Cone Denim.

“We felt there was a lack of true understanding of the key drivers of profitability at Frontier and we set out to change that when we took over the business,” Finnegan said. “We spent a lot of time on pricing the product, and the greater reliance on metrics the new CEO introduced helped give us much better visibility of the profit that we were or weren’t making with various customers –– and the business as a whole.”

One of the big challenges Bakane and the Sun team faced was the fluctuating price of cotton, which increased from 70 cents to $2.24 a pound and drove the need for more working capital. Bakane combated the rising cost by hiring a cotton risk manager he had previously worked with to lock in long term prices at attractive levels.

Bakane and Sun also instituted a number of changes at Frontier to further reduce costs and increase growth. In early 2009, Frontier closed a plant in South Carolina that was too small to compete on a cost–effective basis. Later that year, Frontier raised prices on various products.

Between 2008 and 2009, the company reduced the total number of employees from 868 to approximately 700.

The changes Sun and Bakane instituted drove significant increases in profitability and eventually led to Frontier posting record revenues and EBITDA in 2010, growing 34 percent and 84 percent, respectively.

The growth forced Frontier to expand positions at facilities, and the company currently has approximately 1100 employees.

Frontier’s ability to adapt to the downturn has also allowed the company to increase its current market share. During the recession, several smaller yarn companies were forced to downsize or go out of business entirely, which opened up additional sales opportunities for Frontier.

Still, Sun has plans to grow the business even more prior to making an exit.

“A growth opportunity we’re assessing is whether we can expand our export sales outside of this hemisphere,” Bakane said. “For example, China and some export sales to Vietnam are attractive markets, and at some point we’ll make an assessment as to whether to set up direct manufacturing into Asia as well.”