Changes At Spellbinders

According to a statement issued by Spellbinders, the company has taken on Pennsylvania-based private equity firm RAF Industries as a “partner”.

RAF Industries is a privately-held private equity fund based in Pennsylvania that specializes in buying successful companies from the entrepreneurs that founded them and then keeping the founder on in the company post-acquisition to continue to provide the vision and drive that made the company successful.

As part of the new relationship with RAF, Jeffrey Caron’s position as Spellbinders CEO has been discontinued. He is now serving in what the company calls a “consulting role”. Dan Simonson is now fulfilling the role of COO at Spellbinders. Simonson joined Spellbinders as Director of Finance in late 2010 after serving as a consultant to the company for two and a half years, giving him almost six years experience with the company.

“Jeff and I are excited to partner with a world-class organization such as RAF Industries. Working with RAF Industries will allow for future growth.  It is an affirmation of our continued commitment to bring the most innovative products to the global marketplace,” Stacey Caron says of the new partnership.

So what exactly does “partner” mean? According to documents filed March 15th in the company’s patent infringement lawsuit against Lifestyle Crafts, Spellbinders LLC (the Limited Liability Company founded by the Carons) is now 100% owned by a newly-formed corporation called Spellbinders Holdings, Inc. According to a rep for Spellbinders, the Carons are shareholders in the new holding corporation. Corporate documents filed with the states of Arizona and Pennsylvania list only RAF Industries officers making up the Board of Directors of the new Spellbinders Holdings entity. The Chairman, President and Treasurer of the two companies are identical.

Robert A. Fox, who is Chairman and CEO of RAF Industries, and also Chairman of Spellbinders Holdings, said of the arrangement:

Spellbinders is a great opportunity for RAF and a perfect example of RAF’s philosophy of working with successful entrepreneurs to build world-class companies.  We were attracted to Spellbinders because of its exceptional management, its market-leading innovation and considerable growth potential.  We are excited about the future prospects of Spellbinders and look forward to working with the Carons.

12 Responses to Changes At Spellbinders

  1. KathyinMN July 15, 2013 at 11:01 pm #

    I forget-did they file for bankruptcy after the Lifestyle Crafts lawsuit went away? I wonder if the legal fees caused the reorg. Great investigative article!

    • Nancy Nally July 16, 2013 at 9:19 pm #

      The Lifestyle Crafts lawsuit hasn’t gone away. It is still ongoing – Spellbinders lost in the lower court and has filed an appeal. They have not filed bankruptcy.

  2. deb July 16, 2013 at 12:59 am #

    VERY INTERESTING….hadn’t heard about the lawsuit until now.

  3. Rosemary July 16, 2013 at 8:14 am #

    watch out. this may be like the kind of organization Romney is (was) involved in that gets involved with companies ‘going under’ under the pretense to help, only to make it worse and make money from the failure of the company. Let’s hope I’m wrong or Spellbinders will be a thing of the past with RAF making a killing.

  4. Sandy Lewis July 16, 2013 at 10:19 am #

    I worked for a company that was bought by a “holding” company – and it no longer exists now. Completely gone! Hope that doesn’t happen to Spellbinders. Of course, the man that owned the company I worked for made millions of dollars in the sale of his company to the “holding” company. Sometimes, that’s all that seems to matter.

  5. Addie July 16, 2013 at 2:10 pm #

    I was thinking along the same lines as Rosemary above: that this was a way of avoiding the legal responsibilities of bankruptcy and at the same time getting some renumeration. Clearly the Carons could not afford to keep things as they were.

  6. Nancy Nally July 16, 2013 at 9:25 pm #

    Holding companies are extremely common ways for large corporations to hold subsidiaries…it’s just a legal construct that has certain advantages for tax and other purposes. For instance, EK Success has been held in a holding company for quite awhile now by its owners.

  7. Carley Sanders July 17, 2013 at 9:27 am #

    How can you people speculate about the solvency of a company or the individuals that own it? Unless you have first hand knowledge of these facts, I would keep them to myself. This is exactly how rumors start…people speculating. What good does it do?

  8. gabmcann July 18, 2013 at 3:54 am #

    Thanks for the update Nancy

  9. Addie July 18, 2013 at 3:49 pm #

    Spellbinders financial problem wasn’t idle speculation, it was based on this:
    The punitive judgement combined with loss of the patent claim is a huge financial setback.

  10. Nancy Nally July 19, 2013 at 12:37 am #

    Yes, Spellbinders was ordered to pay over $500,000 in legal fees to QuicKutz and Lifestyle Crafts after the summary judgement was ordered in the patent infringement case, in addition of course to their own presumably massive legal bills during the course of the case. They are currently appealing the summary judgement of the patent case. There’s no question this battle has cost the company a load of money, and is continuing to do so – especially if they lose their appeal.

    However, since they are a privately held company, there is no way to tell what effect this is having on the company’s finances. Carley is right. While it might seem a reasonable assumption that $1 million or so in legal fees (if you include the judgement) is an expense that would not go unnoticed, no one can know for sure what impact it is having unless the company gives off visible signs of distress, which to date it has not. (And a merger/acquisition is not necessarily a sign of distress. Plenty of successful companies get bought when owners are made offers they can’t refuse, or they want cash infusions for expansion. It happens in Silicon Valley all the time.)

  11. Addie July 19, 2013 at 8:13 am #

    It’s the timing of the merger/acquisition that begs questions, but your point is well taken, Nancy.

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