When Dave Zilko crossed paths with Jack Aronson, the two neophyte dealmakers had no clue about the future that awaited them.
“He was just another struggling Detroit entrepreneur who came up with a fresh salsa recipe in the back of his bankrupt restaurant,” recalls Zilko, who at the time owned a couple of small specialty food companies. “I figured what could possibly go wrong, two flunkies from Detroit with a fresh salsa recipe.
“We got laughed at for quite a while,” Zilko admits. “I wasn't above sympathy sales for the first couple of years. But we eventually figured it out and grew to be the No. 1 brand of fresh salsa in the United States.”
Zilko and Aronson got the last laugh when they sold Garden Fresh Gourmet to Campbell Soup Co. in 2015 for $231 million. It was the culmination of a lot of hard work, a ton of emotion and the willingness to take a risk.
“This stuff is still as much art as it is science,” says Zilko, who these days is a board member at Huron Capital and CEO at FUEL Leadership. “Sometimes you've got to follow your heart as much as your head. It's just a crazy thing to go through, especially when you're a family company like we were.”
Smart Business Dealmakers caught up with Zilko to talk about how the Garden Fresh Gourmet deal got done, the emotional toll that dealmaking can take and the move Campbell’s made earlier this year to sell the business.
Plant your flag
From a deal perspective, I always kept in mind an exit strategy. Who's going to buy us? In today's world, there are two types of buyers. One is the financial buyer, which is typically private equity. I'm an operating partner at the largest private equity firm in in Michigan, so I'm very well-versed in private equity. But I wanted to sell to a strategic buyer because I knew that the multiple would be higher and we would get a higher valuation. So as we built our company, I was sales and strategy and Jack was operations and strategy. We built it with a strategic buyer in mind. What would a strategic buyer want?
We just planted our flag on being the premier deli supply company in the U.S. We started with fresh salsa, but then we added chips and dips. We had guacamole and we had hummus. We were the first ones in our space with high-pressure processing, which allowed us to offer a lot of our lines all-natural, particularly the hummus and dips. So we kept layering in these strategic advantages that our competitors couldn’t match, knowing that we wanted to make ourselves attractive to a strategic buyer, not a financial buyer.
We always made sure we were on the perimeter of the store because that's where we felt the most value was being created. I believe that we were the premier deli supply company in the United States and as long as we were the best at what we did in our space, we would be creating significant value, regardless of our financial performance, which again is important. But we would not have been valued as highly as we were if we were just a solid, center-of-the-store company. We had a lot of opportunities to go to other areas of the store. We stayed in the perimeter because we felt that's what would make us most attractive to a strategic buyer.
Understand your emotions
We were approached by lot of strategic buyers, including Campbell's. We never went to auction, never put a book together, never formally put ourselves up for sale. We had extended discussions with easily four or five strategic buyers. It actually took me a couple months to convince Jack to continue the dialogue with Campbell’s. He trusted me and I trusted him and we just loved each other. He founded the company. I didn't. I completely understood where he was coming from, and I knew it would be a harder decision for him than me. I respected that completely.
He co-founded the company with his wife and his five kids, who were all equity partners in the business. So I met with all of them individually and gave them my feelings on where we were strategically in the market, as a company and personally. I fully understood what a sensitive decision it was for all of them. We just trusted each other and came to the realization that this was going to be the right move. Every situation is different. There's no right or wrong answer. Hopefully it works out for everybody involved.
There are always a million hiccups. Campbell's gave us a 104-page purchase agreement. If memory serves me correctly, it was 25,000 words. Now, I wrote a book on our adventures afterwards. It's called, “Irrational Persistence: Seven Secrets That Turned A Bankrupt Startup Into A $231 Million Dollar Business.” That book was 55,000 words. So their purchase agreement was 25,000 words. Roughly half the length in terms of words of my book. There's just a lot of hiccups. There's a lot more reasons not to do these deals than there are to do these deals. So it's just something you have to power through.
On Feb. 26, 2019, Campbell’s announced it was selling Garden Fresh Gourmet to an affiliate of Fountain Of Health USA.
I think I can speak for both Jack and I when I say that we were sorry for the experience Campbell’s had with Garden Fresh as a whole. We truly thought they were terrific people, that purchasing Garden Fresh was a strategically sound decision for them and that they had the essential mechanics in place to execute accordingly. We genuinely wanted them to be successful with their purchase and were genuinely rooting for them. It obviously did not turn out the way any of us hoped or anticipated, but it did not change Jack or my feelings about the deal we made with them. Again, we thought they were the perfect next step for Garden Fresh. In the end, it just wasn’t something they could make happen.