("=Partnering With Strategics? Catterton Cracks That Coconut," published at 7:21 p.m. EDT, misstated the title of Managing Partner Scott Dahnke. A corrected version follows.)

 
 
   By Beina Xu 
   Of DOW JONES LBO WIRE

Catterton Partners is no stranger to co-investing alongside strategic players in deals, and its latest investment exhibits the firm's faith in the strategy.

Catterton is going in on a minority stake with Pepsi Bottling Group Inc. (PBG) for O.N.E., or One Natural Experience, a natural-beverage company whose signature drink is coconut water. Both PBG and Catterton contributed equity, although neither would comment on deal terms.

The plan is to significantly expand distribution in Southern California and South Florida, two regions with strong Latin American demographics that the company hopes will drive consumption of O.N.E.'s tropical beverages. PBG will begin distribution in the fourth quarter.

Private equity interest in the healthy foods sector has been robust of late despite the consumer downturn. Rodrigo Veloso, founder and chief executive of O.N.E., said that the company had interest from eight buyout shops. It eventually picked Catterton because of its operational expertise, he said.

"We are going to have a very surgical, strategic approach to the market," he said of the company's plans. "[Catterton] is bringing much more than money to the equation. There's money, then there's smart money."

But both Catterton and O.N.E. said they needed the presence of a large strategic investor to get the scale of growth to where it needed to be.

"The strategic players have assets they're well known for - they have scale, distribution economies, and therefore that provides access," said Catterton Managing Partner Scott Dahnke.

For Catterton, which targets the consumer sector, co-investing with a strategic is an "innovative" way to structure deals; the firm has been doing such deals for the past six years. At the same time, the private equity firm's involvement assures the target company that it won't lose its way inside a big corporation.

"We can make sure they don't get lost in the broad milieu of the corporate structure, and work with them at a very micro level," Dahnke said. "It's a win-win partnership when it's done well."

But he acknowledges there are instances when doing a deal with a strategic can go poorly, often because of changing priorities at a large corporation.

"On paper it looks fantastic, but if PBG changes its priorities, that's a risk for us. We need to be sure that everything that we are so excited about continues to be in place," Dahnke said.

Catterton so far has done six co-investments with five different partners, and is looking at several more currently. For example, in 2004, it teamed up with Jarden Corp. to invest in American Household Inc.; in 2006, it set up a partnership with Starwood Hotels & Resorts Worldwide Inc. to create a restaurant and licensing business led by chef Jean-Georges Vongerichten. And earlier this year, Nestle Waters North America came in on an investment Catterton had already made in Sweet Leaf Tea Co.

-By Beina Xu, Dow Jones LBO Wire; beina.xu@dowjones.com