By Bill Beattie
As you know, some foodservice operator segments have been in a lot of pain the last few months. As a result, more than a few distributors have experienced the resulting damage to their bottom line. We’ve had several recent, increasingly urgent conversations with owners who are contemplating very serious questions about the future of their businesses as they start 2009.
Maybe I’ve just described your situation, or maybe I’m completely off the mark and you’re enjoying steady growth like some of our good friends out there. In that case, you could face a challenge as well. If you are growing, do you have a specific well documented plan for when you’ve exhausted the last bit of the most expensive real estate in the world – your warehouse? Do you have a plan to develop, or hire, the management team to lead and operate a larger enterprise? Have you analyzed the acquisition opportunities in your market?
Charting Your Course
There are some major negative influences at work in today’s economy – more so than in anyone’s recent memory. You can control some of these factors, while others may be forced upon you. Regardless of the circumstance, you need to deal with all of them to avoid undermining the value of your business investment and to maximize your opportunities for growth. In your current world, you address customer or vendor problems because you are already proactive in your day-to-day business leadership. Now you need to be proactive about your business investment as well as your business operation. As we start the new year, we ask that you make a resolution: take charge of the future of your business by preparing a plan to sell your company or a plan to grow your business that incorporates acquisitions – whether or not you feel like you need one today. You should be prepared to take on any challenge, or opportunity, going forward – because you have taken the time to chart the strategic direction of your company.
If the economy is not having a dramatic effect on your business, you may ask why you need either a selling or buying strategy or both when things feel OK. Remember that we’ve seen some very large distribution companies get sold in the last two years - and many smaller ones as well. And we’ve seen some interesting acquisitions by players of all sizes that have been quietly and steadily planning ahead for their future. We’ve also advised distributors about buying other companies as a way to maximize their value before they sell themselves further down the road. No industry is immune to market forces, and no company should ignore market opportunities.
Developing a Selling Strategy
On the potential seller side, the demands of our industry cause too many foodservice distributors to focus almost exclusively on day-to-day operations – and when they find themselves in turbulent seas, they just keep bailing water – until it seems as if the only option left is forced liquidation of their assets. Too many fail to read the warning signs ahead of time and do not prepare themselves for sale in advance.
Whether or not your business is having trouble, and whether or not you ultimately choose to sell, in truth, everyone should be “saleable” – it’s just good business to make sure that you’re dotting every i and crossing every t financially. So when you get a call some day and you’re asked “are you getting tired of running your own business?” – whether the answer is yes or no, you will be in the driver’s seat because you know exactly what your company is worth. Use the time before that call to improve your operations and your profitability, and plan in parallel:
• To do everything you can to sustain and potentially grow your business
• To develop a business sale strategy and plan – quickly and quietly.
Bear in mind at all times, if the first track yields fruit, you may not choose to sell. All the better reason for keeping your parallel track a highly confidential project! We recommend you begin this parallel track approach early – well before any need may arise: 3 months, a year, even 3 or 4 years ahead of schedule. The earlier you develop your plan, the more likely you will be to reap the maximum value if you do end up selling your business.
Creating a Buying Strategy
On the potential buyer side, we talk to many other distributors who continue to experience significant growth despite the economy. The potential downside is that many of them are operating freestyle – with no strategic plan for growth. Too many healthy distributors also fail to see the upside in today’s marketplace, where they could help to build the value in their business even more as:
• Operators seek relationships with more dependable distributors who will go the extra mile to help them weather their own downturn
• Suppliers look for new, solid and growing distribution opportunities
• Employees become increasingly concerned about any perceived instability of their employers and could be lured away by competitors.
In addition, acquisition opportunities are abundant – whether they are with distributors who overlap them geographically and add needed DC space, add specialty capabilities to their core offerings, or extend the buyer’s geographic reach to further leverage fixed assets. At no other time has buy been so much more appealing than build, and the types of buying opportunities are abundant. Your business is an investment and it’s critical, to be sure your capital is being put to best use.
Please remember that developing a plan to sell or buy (or a mix of both) does not mean you will need to take one of those paths. It simply puts the choice in your hands, where it should be. And, yes, you always have choices – even regarding decisions or economic factors seemingly out of your control.
Don’t be surprised by your future – be prepared.
Bill Beattie is a co-founder and managing director of Keiter Stephens Advisors, the foodservice distribution finance and consulting subsidiary of Keiter, Stephens, Hurst, Gary & Shreaves. They have worked with over 50 privately-held distributors across the country: improving their bottom line performance, facilitating mergers and acquisitions, planning management succession, advising on incentive compensation plans, and coaching owners through their most difficult decisions. KSA finance and operations specialists have proven track records of creating value in the industry.
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