When it comes to investing in the baking and snack industries, Chicago-based Arbor Investments looks for middle-market companies — those with $300 million and under in annual sales — that are family- or entrepreneurial-owned and looking to take their businesses to the next level. They’re companies like Gold Standard Baking, a producer of frozen and fresh croissants, Danish and other laminated products, started by the Caparos family in Chicago, or Dallas-based Truco Enterprises that’s run by entrepreneur David Silver and that markets On The Border and other ethnic foods. Arbor Investments provides liquidity and works with the individual management groups to make sure the companies have the tools and direction to grow.
During the past 14 years, Arbor has invested in more than 30 companies and sold off 64% of them — most in six years or less. In our exclusive report, Editor Dan Malovany interviewed Ryan McKenzie and Richard Boos, partners with Arbor, about its operating strategies and what attracts the firm to acquire and invest in the food and beverage industries. For more information on Arbor Investments, visit www.arborpic.com.
Dan Malovany: What is Arbor’s philosophy when it comes to investing in companies, and how is it different from others?
Ryan McKenzie: We look for companies that have a strong management team operating in a defensible niche within the food and beverage industries. Since our founding in 1999, we have had a disciplined segment focus on food and beverage — something other firms have only recently begun to embrace. We work with the management team to take the company to the next level of development. Given our exclusive focus on food and beverage companies, we believe we offer a compelling value proposition to owners seeking a partner through our extensive Rolodex and experience in the space.
Who are the investors behind Arbor, and what are your goals?
Richard Boos: Our investor base is composed of a variety of institutional investors, including pension funds, university endowments and fund of funds, as well as a number of high-net-worth individuals. Our primary goal is to use our capital to add value and grow leading companies in the food and beverage space while generating superior returns for our investors.
What attracts Arbor to small- to mid-size companies in the food industry?
Mr. Boos: Our team consists of lifelong food and beverage professionals with deep experience, expertise and contacts in the industry. We believe our unique position as the market maker and leading financial sponsor within the middle-market food and beverage industries allows us to serve as a growth catalyst for companies that are at a pivotal point in their existence. Through generating new customer opportunities, inserting strategic planning processes, reinforcing management team depth and providing unparalleled functional discipline support, we have successfully assisted more than 30 middle-market food and beverage companies in achieving their full potential.
What attracted you to invest in companies like Gold Standard and Truco Enterprises?
Mr. McKenzie: We are a strong believer in the importance of chemistry when selecting a business partner. Over time, we were able to build meaningful relationships with the Caparos family (owners of Gold Standard Baking) and with Dave Silver (owner of Truco Enterprises). The trust we developed allowed for smooth transitions into both partnerships. Furthermore, we provided the right solution to the sellers in both instances: liquidity with continued equity participation to the Caparos family at Gold Standard and liquidity and continued management responsibilities to Dave Silver at Truco.
What would not be a good fit for Arbor Investments?
Mr. McKenzie: Companies with no tie-in to the food and beverage space or companies with more than $100 million in EBITDA would not be good fits with Arbor. Furthermore, we tend to avoid companies with a commoditized end product that provides little to no value add.
What is your strategy for developing value with these companies?
Mr. Boos: After acquiring a company, we immediately embark on an intensive strategic planning process to establish goals and implementation plans. We then insert our functional discipline team to install state-of-the-art accounting and information systems. Next, we work with the existing management team to augment management depth wherever necessary, often pulling from our operating partner team or our network of contacts within the industry. Finally, we seek to leverage our retail and foodservice relationships to generate new customer opportunities and fuel growth.
How do you manage these various operations?
Mr. Boos: We work with management teams to create businesses that develop innovative, high-quality products at a compelling value for our customers. By establishing proper tracking metrics and goals, introducing new customer relationships through our network and applying operational best practices, we are able to bring significant value to our portfolio companies.
How do you determine when to exit an investment?
Mr. McKenzie: There are a number of factors that go into determining the proper time to exit a portfolio company. As a general industry average, portfolio companies are usually held for four to six years. We look at each investment individually to determine where it is in its lifecycle.
How does Arbor take companies to their next chapter?
Mr. Boos: In many cases, our portfolio companies are family- or entrepreneur-owned businesses that have been enormously successful but are still not quite on the radar of the Fortune 500. When we partner with a company, we seek to grow the businesses to attract the leading companies in the food and beverage space.
Another example of a transition we can help facilitate involves family or entrepreneur owners that want to achieve some liquidity while maintaining a significant equity stake going forward. We provide flexibility in how we structure transactions so we can help sellers achieve their goals.
Mr. McKenzie: We offer extensive experience in acquiring and operating food and beverage businesses, significant flexibility in the structuring of transactions and a value-added partnership proposition with a successful track record.