Keiter Stephens Advisors - KSA Foodservice Finance Report

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KSA Foodservice Distribution Update

April 2009

Two Different Kinds of Company Sales: the Stand Alone and the Fold-In

By Bill Beattie

Whether you are a foodservice distributor considering buying another company or selling your company, or if you’re simply curious about the kinds of sales that are going on today, you should understand the basics about two of the most common types: the Fold-In and the Stand Alone. Each type of sale involves a unique set of circumstances and both should be carefully examined as owners begin their planning process.

The Stand Alone Purchase

In this scenario, the acquired company continues to operate at its current facilities with the majority of its management and staff in place. A candidate for a stand-alone sale is generally one with:

A history of solid financial results
A healthy, diversified customer base
A geographic footprint that is contiguous to the buyer’s or one that significantly reduces miles driven from the buyer’s current location(s)
Product lines that are similar or complimentary
A highly-skilled management team that can adapt to the structures and strategies of the new parent company, but can also run day-to-day operations with minimal oversight
A satisfactory current truck fleet configuration
A substantial physical plant that is large enough to handle growth, or sufficient real estate for expansion
A demonstrated history of progressive food safety practices

If you are a seller, and these traits sound familiar, then your company could be a great stand alone candidate for the right kind of buyer.

The Fold-In Purchase

On the flip side is the fold-in, where the seller’s operations are “folded into” the buyer’s existing facility. Both healthy companies and distressed ones can be candidates for this option. And though companies with better financial results will command a higher valuation, even underperforming companies can have value to the right buyer. In the latter situation, recognizing the warning signs and acting quickly is critical.

Here are a few thoughts regarding the fold-in approach:

Because the buyer is only acquiring what is of value to them – not the pieces they don’t need – they can sometimes be persuaded to pay a higher price for the business than they would as a standalone.
Geography plays a more important role since the seller’s customer base needs to match relatively closely with the buyer’s current delivery radius.
Buyers want to see either high SKU commonality or a specialty that would enhance retention or drive new business development, like meat, produce, or an ethnic specialty like Italian.
Fewer employees are generally hired by the buyer. Those hired traditionally include the sales team, some drivers, and potentially other key personnel and owners, based on the buyer’s needs.
The seller may need to find an alternative use for their current facility.

One final thought. With fold-ins, there will be an overlap in both sales territory assignment and sometimes in the customer set. Both companies have to bear in mind that where they are serving same customer, the customer may not give them the same current book of business because then they won’t have the competitive checkpoints that they had before – 1 + 1 may not always equal 2 for the buyer.

Plan Ahead

It behooves every owner thinking about selling (or buying) today or tomorrow to understand these two approaches. Preparing your business to secure the right price and purchase terms, identify the right buyer and closing the transaction before the word gets out, takes experience and skill. Carefully check the credentials and references of the advisors you interview to assist in this effort. Make sure they are successful in today’s more challenging economic environment. The more advance planning you can do, the better your chances for success.

Please give me a call at 804-565-6018 or email me at bbeattie@ksadvisorsllc.com if you have questions or would like to discuss this further.

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