Hooked on Phonics

Situation

Hooked on Phonics, a well-known consumer education company, was a high flier that ran into difficulties and filed for bankruptcy. Rosewood viewed the Company as an attractive investment opportunity, depending on the process and the economic terms of the transaction. However, the fund’s interests were at odds with those of HOP’s creditors.

Engagement

The Company’s creditors sought a competitive and potentially lengthy auction process to maximize value. As advisor to the buyout fund, our goal was quite the opposite: to end-run that process and acquire the business as quickly and as inexpensively as possible. Our due diligence uncovered that HOP’s founder was the owner of the famous 1-800-ABCDEFG telephone number the Company used as its primary consumer marketing tool. The founder licensed use of the telephone number to HOP. We encouraged our client to enter into an agreement with the founder, which would grant it the exclusive right to own the telephone number—irrespective of whether we were the successful buyer.

Outcome

This tactic was successful, as it significantly reduced other buyers’ enthusiasm for the property, and thus our client was able to buy Hooked on Phonics on desired terms expeditiously.