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La Familia and the Allure of Growth

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Questions about the future are percolating at F. Gavina & Sons Inc., a family-run coffee company in Vernon.

The same is true at Pasadena-based Liborio Markets, which is run by two generations of the Alejo clan: Enrique and his sons, John and Rick.

Like hundreds of other businesses across Southern California, these so-called ethnic family companies are thriving. Gavina, for example, has just moved into a new headquarters and roasting plant, bringing seven operations together in one building. The enterprise will generate about $65 million in sales of coffee to supermarkets and restaurants this year.

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Liborio, which brings in more than $75 million in annual revenue, has just cut the ribbon on a store in Las Vegas and plans to open more in Nevada.

But with this good fortune have come some tricky issues: How much can these companies continue to grow without losing the homegrown character that makes them special? How can this expansion best be financed? And should professional managers from outside the families be hired to help oversee the burgeoning businesses?

With generations working together to build a company, the family model looks idyllic. Right now, strategic planning is kept pretty simple at an operation such as Liborio’s. “My father allows us to make decisions on a majority basis,” John Alejo says. “If two go one way, it gets implemented.”

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But idylls are the stuff of poetry, not business. Change -- perhaps smooth, perhaps wrenching -- is inevitable for the Alejos, the Gavinas and many more.

Increasingly eager to play a role in their transformation are institutional investment funds, which offer specialized forms of financing.

The attention they are lavishing on these Latino (and Asian) family-owned businesses isn’t surprising, of course.

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“They are one of the stronger areas of growth in the economy,” notes Thomas Unterman, head of Rustic Canyon Partners in Los Angeles, which manages $700 million of investments for, among others, the trusts of the Chandler family, which once owned The Times.

Rustic Canyon is forming a partnership with Fontis Ventures, the investment vehicle of the Villanueva family, to raise $150 million from pension funds and others to provide private equity capital to Latino family businesses throughout the Southwest. Other private equity investors, such as San Francisco’s Shansby Group, are also eagerly pursuing Latino-led companies.

Private equity investors typically pony up sizable chunks of capital in exchange for 30% of the business, hoping to earn returns of 15% to 20% compounded over three to five years.

The money they make available can be a huge boon.

“It helps family companies move beyond their local bank financing,” explains Daniel Villanueva Jr., who runs Fontis with his father, Daniel Sr., a longtime investor in Spanish-language broadcasting.

In turn, these family-owned businesses are able to purchase computer systems and make other costly upgrades.

Firms that don’t tap into private equity and move forward, meanwhile, run the risk of getting crushed by more aggressive rivals. “Those who don’t take it will see others move past them,” says James Ellis, who created USC’s family business program, which has advised many Latino concerns.

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So is there rejoicing in the Latino business community about this influx of cash? Yes and no.

“The capital can be sweet in the beginning,” says Jorge Rodriguez, chief financial officer of Mercado Latino, a City of Industry-based firm that distributes food products to supermarkets and restaurants. “But the investors are not coming into the business for love. They want returns.”

The fear is that in accepting the funding needed to spur growth, family control will diminish and ultimately disappear. That’s why Leonor Gavina-Valls, though fully behind the coffee company’s ambitions to reach into new markets, hesitates on the subject of private equity.

“We are not interested -- at this time,” she says, quickly repeating “at this time.”

So what does the future hold?

For one thing, “consolidation is coming,” the younger Villanueva says. “Many of these companies will be merging together” to better compete with the national chains that are hungrily eyeing the ethnic marketplace.

Villanueva points out that at this stage, California has produced few, if any, Latino companies the size of Goya Foods, a national distributor with $750 million in annual sales.

But the reference is telling: The owners of Goya Foods, the Unanue family of Secaucus, N.J., split apart this year over whether to supply Wal-Mart Stores Inc. or stick with the firm’s traditional customer base of specialty ethnic markets.

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This is not to say that the Alejos or the Gavinas, whose roots lie in operations that roasted coffee beans in Cuba for more than 100 years, will suffer a similar fate. It is to suggest, though, that these companies are at a turning point requiring them to wrestle with two distinctly different realities: Family is precious. But business is business.

James Flanigan can be reached at jim.flanigan @latimes.com.

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