Tom Walzer, CEO of Saco Foods and expert in CPG manufacturing, shares his insights on the delicate balance between organic growth and mergers & acquisitions. He outlines six pillars for M&A success, including strategy and synergy. Tom reflects on lessons learned from his Fortune 500 experience, emphasizing the importance of trust in leadership transitions. The conversation also dives into identifying market 'white space' for growth, and how platformization can enhance acquisition strategies while keeping debt under control.
The CEO emphasizes a family-oriented culture that fosters collaboration, enhancing employee commitment and driving overall company performance.
Utilizing financial arbitrage through acquisitions at lower EBITDA multiples allows for significant returns and strengthens market position through synergies.
Deep dives
The Barbell Structure of Business Operations
The company operates on a unique 'barbell' structure that balances sales and marketing on one side and logistics and distribution on the other, with IT, accounting, and food safety holding it together. This shared service platform has evolved since its inception in 2018, where its costs represented 6% of sales; now, with a tripled investment, it has been reduced to 3%. This strategic focus on enhancing the operational backbone enables the company to pursue a robust acquisition strategy while efficiently managing costs. Through this framework, they aim to generate synergies that maximize overall business value.
Lessons from Diverse Backgrounds
The CEO's diverse experience in Fortune 500 companies and family-owned businesses has significantly shaped his approach to leadership in a private equity-backed setting. Knowledge gleaned from cost accounting to sales finance equipped him with insights into maximizing operational efficiency and understanding P&L dynamics. Importantly, he emphasizes the need for a family-oriented culture where collaborative success benefits all employees, not just a select few. This foundational belief fosters an environment conducive to growth, learning, and performance.
Inorganic Growth and Financial Arbitrage
Inorganic growth through acquisitions is vital for the company, especially when acquisitions can be made at lower EBITDA multiples than the platform's valuation. The concept of financial arbitrage is highlighted, where acquiring a company at a lower multiple can yield substantial returns due to increased overall valuation and operational synergies. This approach has been proven effective by generating an immediate return on investment, as shown in a case of acquiring a million-dollar business at a six multiple while the platform trades at eight. By ensuring the proper execution of these transactions through structured deals and synergies, the company strengthens its market position.
Cultural Integration and Ownership Mindset
Achieving successful cultural integration during acquisitions is facilitated by empowering employees to act as owners in the company. The establishment of an employee ownership plan has made key leaders stakeholders, promoting a sense of belonging and commitment to the company's mission. This ownership mentality not only boosts morale but also enhances the effectiveness of outreach efforts to retailers and potential partners. By fostering transparency, integrity, and collaboration, the company creates a culture that resonates internally and externally, attracting strong partnerships and driving growth.
Tom Walzer, CEO of Saco Foods, joins us to discuss the balancing act between organic and inorganic growth to maximize your sponsor’s MOIC and IRR. Tom shares his six pillars of M&A success: 1) Strategy, 2) Arbitrage, 3) Synergy, 4) White Space, 5) New Product Development, and 6) Future M&A Opportunities.
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This episode is hosted by FALCON Partner, Rob Huxtable. FALCON is a retained executive search firm exclusively recruiting C-level leaders in the PE-backed, middle market.
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