Successful exit for family owned food business

Business Issue

Case Study

Star Foods S.A. was a start up Company in Poland owned by a Greek, entrepreneurial family. The patriarch was charismatic, energetic and visionary. He had four sons who he was grooming to take over. Some were more competent than others.

An informal decision making process, high priority for growth with an end goal of eventual exit had led to position where the Company was drastically over trading. This resulted in working capital issues, abnormal levels of bad debt and operational inefficiencies.

Background

Star Foods had a manufacturing base south of Warsaw with a nation wide distribution network of 400 direct salesmen, 8 major depots and 210 delivery vehicles serving some 80,000 points of sale. Distribution covered all the major channels; key account (Carrefour), medium and minor retailers down to the smallest village shop. The distribution network was leveraged to sell complementary, third party products such as chocolate, biscuits and nuts. The rapid growth in complexity and size of the business had led to the inability of paper processes to cope, weak financial control, inaccurate tendering for third party contracts and organisational dysfunction.

Challenge

The organisation was growing at the expense of profitability and cash flow. It was highly leveraged and Banks were concerned about the ability to service debt. The Company had already acquired funding from a Venture Capitalist with Board membership. There was heavy pressure to crystalise an exit as soon as possible. Scalability was not achievable with current processes and organisational culture. Drastic cultural and process change was required. The main market competitor was Pepsico (Fritolay). A strategy of gaining significant market share to force a buy out was in place.

A company exit within a horizon of 4-5 years was planned. The business plan process focused on gaining market share and generating sufficient cash flow to sustain the business. Initially meeting the monthly payroll was an issue. There was a strong focus on channel profitability, reducing bad debt and improving efficiency of the Distribution operation.

Solutions

  1. Creation and implementation of a formal organisational structure.
  2. Creation and implementation of a formal planning, budgeting and financial control structure.
  3. Restructuring of the Accounts function.
  4. Restructuring of Credit Control.
  5. Creation of an Information Technology Department and Management Accounting Department.
  6. Creation and implementation of an I.T. strategy which required :-
    – replacement of all software programmes used by the company which included compiling specifications, the invitation to tender, bid analysis, contract negotiation and contract award.
    – creation of a Wide Area Network (WAN)
    – implementation of e-mail
    – access to data through the internet
    – implementation of supply chain management software
    – implementation of a new Oracle ERP system of which supply chain is an integral part
    – implementation of a new Sales Force Automation system
  7. Changing the culture of the organisation.
  8. Managing the relationship with Banks, Strategic Investors and Creditors during a time when the Company was generating significant losses, repaying loans and seeking new financing.
  9. Taking a leading role in restructuring the organisation in the face of difficult market conditions and poor financial performance.

A strategic overview and projection of business goal was required. The previous intuitive approach was not sustainable.
The business was a close knit, family business. There were sensitivities with regard to existing roles and responsibilities and competence therein. The first challenge was to gain trust and acceptance on a personal basis. Many meeting seemed to achieve nothing but in hindsight building the relationship was key.

Benefits

Within two years the company became cash flow positive, market share continued to rise and the decision making process had improved greatly.
Star Foods’ own product sales growth was phenomenal. Poland is one of the most competitive salty snack markets in the world, with all the major international players present. At the time of sale we were joint leader with Fritolay (Pepsi Company) in the salty snacks market in Poland, and in fact a larger Company in terms of employee numbers and volume sales.

As of 30.12.2005 Star Foods S.A. was acquired by Pepsico Intl. The negotiation process took nearly eighteen months and resulted in a final selling price of over fifty times EBIT. Star Foods was nominated in 2005 as one of the five short listed Companies for the prestigious all Poland ”Leaders in Information Technology” award. Every Salesman was issued with a handheld terminal that gave real time sales/payment information on his Customer and allowed online order entry for dispatch the next day.

All of the company’s KPI’s were improved. The management board and business owners were extremely pleased with the successful exit. Over the moon on a successful exit.

EFM Expert: Peter Kuncewicz