The Strategic Advantage of Evergreens in Making Acquisitions

Harbor Foods was founded by my great-grandfather 100 years ago. We are an independent food distributor primarily servicing 6,000 restaurants and convenience stores up and down the West Coast. Today, we have about 1,200 employees in multiple locations, and we are growing both the geographies we serve and the size and complexity of our company. As the fourth-generation leader of Harbor, I feel that it is my task to look toward the next 100 years; what do we need to do now to ensure that we are in a strong position to endure?

At Harbor, we have employed many strategies to grow, evolve, and expand our business. Organic growth is an important strategy for us, in places where we have the capacity to grow. We are also working to grow in terms of capital investment; we buy new facilities when possible, which we then lease back to the business. Our investment in real estate assets helps us diversify and strengthen our company. But perhaps the most significant and effective way we have and can continue to grow is through acquisitions. In large part, this is a great fit for a company like ours because the structures we need for new territories and markets – including experienced team members, trucks, distribution centers, and customers already in place. Our culture of being an Evergreen® company in an industry built by families and independent entrepreneurs gives us a strategic advantage in acquiring other like-minded family companies.

To understand why this is so, it is first necessary to understand the food distribution industry. It is relatively small, and although there have been a few giants in our space for a long time now, including Sysco and US Foods, many in the industry are independent and family owned, like we are. Over the years, it has not been unusual for independent regional companies like ours to come together to form share groups and buying groups, and to learn from each other. Sometimes we even team up to serve customers with a national or international geographic footprint. Brands like Subway are a great example of this; we serve them in Washington, while another independent distributor might serve them in Florida, and we align our model to provide national distribution with the service of a local family business. As a result of the collaborative nature of our space, my great-grandfather, my grandfather, my father, and now I have built strong relationships with companies who might be our competitors in some ways, but who are mostly friends.

Although I joined Tugboat Institute® recently, we have always been deeply Evergreen. The way we run our company is rooted in caring for our people and the communities we serve. Although not every family business is run this way, it is not uncommon, and we share values with many of the other small food-distribution business leaders we have connected with over the years. They know us, we know them, and we trust each other.

Despite this shared long-term, Evergreen orientation, there are times when one of the companies in our space decides to sell. Usually, they come to a point where the next generation doesn’t want to take over the business, so the owner is forced into a position where they have to sell, even if they don’t want to. When those owners look at their options, we are an attractive possibility. A few go into ESOPs, but we compare very favorably to the big, public companies that are also looking to acquire. They like the possibility of selling to us for a few reasons.

First, we are Evergreen, independent, and family-owned, which feels a lot more like what they’re used to. Second, our focus on people, on creating great workplaces, and on culture helps them feel good about selling their business too, because they care about their employees and want them to be in good hands. Finally, even though sometimes the public companies are offering more money, most owners in this position decided long ago that money was not their absolute top priority. They know that if they sell to Sysco or US Foods, they might just shut down their little company, flip the customers into an existing operation, and dissolve the culture completely. It means more to these owners to sell to a company who is going to preserve their legacy rather than just to the highest bidder. This is not true of every seller of course, but for the ones who have run their businesses in an Evergreen way themselves, they are often willing to make it possible for us to acquire them, even if that means selling at a discount in terms of multiples of EBITDA or helping finance the acquisition.

In November, we acquired a company in Modesto, California. They were a fourth-generation business like us and had just reached 101 years. Their culture was built on the Evergreen principles. We became the new owners of MTC Distributing, yet they remained a 100+ year old family business – an Evergreen company. Interestingly, the messaging around our Evergreen culture and mindset as a reason to sell to us came not just from me, but also from the owner we bought the company from. I have known him for about 15 years, and over that time, we have spent time building a relationship with one another. I felt like he thought of me as his own son, taking over the family business.

Our Evergreen strategic advantage in making acquisitions occasionally extends beyond the world of the small, family businesses. In 2019, we bought the Seattle branch of Food Services of America. They were on track to be acquired by US Foods, but the Federal Trade Commission (FTC) stepped in and required that some of their branches be divested, to prevent them from completely dominating the markets. We put in a bid, which is more formal than the process we normally follow for acquisitions, and we were competing with the giants. The FTC was very involved in the sale, and we got to fly back to Washington DC and present our plan to a committee at the Trade Commission. They loved our story. They saw that we were going to create jobs, take care of people, and improve our communities. The FTC got final approval of the buyer for this deal, and they chose us, which was an incredible affirmation of the Evergreen mindset, even in the eyes of the FTC. I have to say that I have felt way better about the FTC’s involvement in deals since this experience.

As I look to the future, I am happy that our experiences making acquisitions are proving effective. I expect that this will remain a leading strategy for Harbor as we set the foundation for our next 100 years. I am even more pleased that this experience affirms our commitment to doing things the right way, putting People First and taking care of our communities. As my fellow Evergreen leaders know, the markets do not always, in the short term, reward those who elect to follow a path grounded in values. But for the Evergreen leader, doing things the right way is the path to long term success.