Produce Company’s Buyer Gets Well-Rooted Sales Base
Though Jamie Frankel, 39, sold his interest in a milk distribution company two years ago, he knew his days as an entrepreneur were not over. Rather than start his own company, he decided to purchase an existing firm in the same industry. Finding the right sales opportunity, negotiating price and making a smooth ownership transfer are some of the lessons Frankel has learned since he bought Sam’s Produce on Feb. 1. He was interviewed by freelance writer Karen E. Klein.
My father, who was in the nursing-home and health-care industry, purchased a milk company when I was getting married in 1984 with the goal that I would run it. I had a 40% interest in that company and over the years I doubled sales, built a new facility and made the company very successful. A little over two years ago, the controlling partners decided they wanted to be more involved in operations, so they bought me out. Since then, I have had my eye out, looking for similar types of perishable-food companies that I might run.
An established company is what I was looking to buy because I knew that more start-ups fail than are successful. The risk is especially high in the food distribution business because you could invest in buying trucks, leasing a warehouse and hiring employees for a start-up, but you’d have nothing without a sales base. That’s the most important asset that you buy in an established firm because wholesale food distribution is not the type of industry you can just advertise over the Internet. The long-standing relationships with steady customers who know and trust you can only be forged over time.
I wanted a stable company with a solid history that would be around for the duration. We have had 10 to 15 years of great prosperity in this country, but if times go bad, people stop buying new cars and fancy clothes but they never stop buying food. It’s always a good investment, and I was fortunate to have the luxury of capital that was available from the sale of my prior company. I figured that by the time my [three] kids are grown, a start-up would be at the same level the business I purchased is right now. I would rather take this company where it’s at now and develop it into a really nice business that they can make a living from by the time they’re grown. I have a head start with this firm, and I’m certainly going to take advantage of it.
In late 2000, I met a broker who worked with Spectrum Corporate Resources in Laguna Hills. He mentioned that he had something right up my alley: A 60-year-old, family-owned produce company whose owner wanted to retire. The company picks up wholesale produce orders on a big truck, brings the product to our warehouse, repackages it and distributes it to Southern California restaurant and food service operations every day. I really liked that the company was in the same niche I had been in, so I agreed to meet with the owner.
We spoke and hit it off almost immediately. He had a very similar philosophy to mine, which was focused on getting his customers top-quality product with phenomenal service at the best prices possible. He impressed me as a man of integrity. On my side, I felt I could bring value to the firm by modernizing operations, introducing computer technology and expanding the customer and the product base.
During the due-diligence period, I had full access to the company’s historical records, accounts payable and receivable and financial statements. The previous owner was very honest about the upside and downside of the company. Since I had run a similar business, I felt comfortable examining the books myself. I did about six weeks of investigation to determine where the company was at and what kind of potential it had. Once I was sure I wanted to purchase it, we spent about a month negotiating the sales agreement and I had an attorney friend help me out with the corporate legal forms and language.
I liked the fact that the company was running successfully and all the systems were in place, so I wouldn’t have to focus on day-to-day operations. I wanted a company that allowed me to spend time with my wife and kids, so I could be involved in things like coaching sports, participating at the schools and enjoying life. I had lost sight of what was important when I was so embroiled in my other company. The day I walked into this company, I told all the employees I wanted them to worry about today and let me be concerned with long-term growth.
They were pretty startled at first because they did not know the company was for sale. But once they met me, found out I was a nice guy and saw that the prior owner and I got along well, that sent a message to them. All the employees retained their jobs, and the owner’s son stayed on as one of my key employees.
One of the great things is that I have maintained an excellent relationship with the former owner. Part of our agreement was that he would stay on at the company for 90 days if I needed him to help with the transition. As it turned out, after the first month, we both felt comfortable with him going into retirement, but I know he’s always available for consultation when I need him. A friendly purchase is really important, because the prior owner can be very helpful to you in the company’s future.
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If your business can provide a lesson to other entrepreneurs, contact Karen E. Klein at the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016 or at kklein6349@aol.com. Include your name, address and telephone number.
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At a Glance
* Company: Sam’s Produce Co.
* Owner: Jamie and Rena Frankel
* Nature of business: Wholesale produce distribution
* Location: 14361 Garfield Ave., Unit B, Paramount 90723
* Founded: 1941
* Web site: www.samsproduce.com
* Employees: 15
* Annual revenue: $4 million
