Turnaround situation - 40+ year old distribution co, doing $8MM+ /yr rev

August 24, 2019

by a searcher from Babson College - F.W. Olin Graduate School in Boston Metropolitan Area, MA, USA

Came across a proprietary deal – actually suggested by another business owner, whose manufacturing business I was evaluating. This business happens to be in the baked goods distribution business, 40+ years old business, great reputation, revenue – consistently $8MM+ per year. The issue – After being very profitable over the years, they are losing money for the last 3-4 years, when the owners stepped back and got a GM to run the business. Per the owners, the GM introduced many new categories / geography and focused on growing the business without paying attention to profitability. They have a sizable debt too. Since this is a turnaround situation, I have following questions:

1. Has anyone been involved in a turnaround? If so, how did you structure the deal? (the owner seems to be open to consider any structure) 2. How did you fund the acquisition? 3. Were you successful in turning the business around? If so, What were some of the things you implemented? 4. Any recommendations?

I am considering this to see if it is viable and learn from others’ experiences/recommendations.

Thanks and look forward to hearing your thoughts. You can email me directly at redacted Nirav

Reply by a searcher
from Athabasca University in Kelowna, BC, Canada

Hi Nirav, something that jumps out at me in what you said is that the GM introduced categories and geographies. Sometimes in situations like this the core business is profitable but the growing parts of the business are not. When a regional business expands it typically does so at reduced returns due to competitive and cost pressures.

I don't know if this is the case here, but if you can get enough information to evaluate the core business vs. the expanded area/offerings you might be able to interpret the cause. If it is the case that expanded offerings lose money, then you will need to evaluate if the expanded business can be turned profitable or if the company is better off to retrench to the core model. When it comes to profit, across customers, geography and products/services the 80/20 rule tends to apply.

Reply by a searcher
from Indiana University at Bloomington in Carmel, IN, USA

I hope you get some good advice from people who have seen or gone through both successful and unsuccessful turnarounds. While I've never been directly involved in a turnaround acquisition, I have been involved in trying to turn around a struggling division. My number one advice is that if you do decide to give it a go, structure the deal so you have minimal downside. If a seller won't accept that then walk away. My second piece of advice would be to get to know the GM if permitted. If you find that this person is reasonable and made reasonable decisions, chances are the business lacks viability.

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