Dealmaking expertise is a must in today’s competitive business climate, says Hickory Farms President and CEO Diane Pearse.

“For the most part, the food industry — food gifting, specifically — is a low, single-digit growth market overall,” Pearse says. “While it's very large, you're not a tech business that has double-digit growth. So companies looking to execute on their strategy and achieve a growth profile absolutely have to include M&A as part of their repertoire of options.”

Pearse came to Hickory Farms in 2016, arriving between two momentous developments for the specialty food and gift retailer. A year earlier, the company was acquired by Chicago-based private investment firm Modjule LLC. Then in 2017, Hickory Farms left Toledo, where it was founded more than 65 years ago, and headed to Chicago to be closer to its suppliers and the operational part of the business.

Both moves, as well as any future deals Hickory Farms may embark upon, rely on a strong culture and a clearly defined strategy to succeed.

“It's not a broad-brush approach that you take,” Pearse says. “It's really a function-by-function analysis of where you can afford the risk and where you cannot.”

We spoke with Pearse about gaining dealmaking expertise and the best strategies to follow when your company is being targeted by potential buyers and/or investors.

Hear Diane Pearse’s M&A insights in person at this week’s ASPIRE Dealmakers Conference, where she will join our lunchtime panel on Chicago’s food industry. Use the code DEAL200 to save $200 on event registration.

Debunking the myth

There's a myth out there that in order to be really good in a particular market segment, you have to have had all your experience in that segment and then seek positions in those particular areas. I was the CFO of Crate & Barrel, then I moved over as senior VP of operations and merchandising at Redbox and then just prior to my experience here, I was the COO at Garrett Popcorn Shops. If you go into every position with an attitude of pushing yourself outside your comfort zone and trying to learn as much as you possibly can in the role, you gain skill sets that are transferable and can transcend market segments.

I'm a CFO by training and then moved into my CEO role, doing deals in a much bigger environment. For example, the oil and gas segments, which is where I got most of my experience with Amoco. It gave me the skill set to be able to jump in and understand what critical financial modeling needs to be done, as well as how to work through the pertinent legal documents. So I myself have some experience in that area, but then I layer on top of that our private investors who have PE investing in their background and as a result, are really strong partners.

Culture is king

If your company is being targeted for acquisition or investment, it is really important to understand how you want your business to live on. If you are going to be leaving 90% of your employees in the company, you want to make sure that the culture that you're putting them into will in fact set them up for success and allow them to continue to thrive. Culture is often as important as strategic fit.

It often seems like the emphasis at the negotiating table is on the numbers and the financials. But if you don't have a culture that's going to work and you don't have a good integration plan, you're never going to achieve the financials that you're negotiating. There has to be a seamless transition and handoff between getting the deal done and closed and then ultimately integrating the company. One of the phrases that I use internally with my own team is that most acquisitions do not fail because it was a bad business strategy. They fail because the body rejects the transplant.

You cannot create a culture specifically for acquisitions. If you don't have a culture from the very beginning that is a collaborative, challenging culture that is willing to provide feedback on daily decisions you make in your existing business, you have no hope of them being honest with you when it comes to an acquisition. Companies that don't have good healthy constructive cultures to start out with shouldn't even be in the acquisition business. The stress and the challenges that get created by an acquisition will just make the dysfunction that much worse.

Keep it real

There are many reasons why a company is targeted or puts itself up for sale. Sometimes it's an owner that is reaching their retirement and they don't have a family member in the business that can take over. So they're looking for an economic payout because they've got their entire net worth tied up in the business. That can be a motivator. But there can also be motivation that the owners have taken the business as far as they can and they need someone who's got more sophistication or more avenues to grow the business to take it to the next level.

The single biggest thing that you need to do if your company is being targeted is be very honest with yourself about the strengths of your business and how those strengths would be perceived by another company and what your shortfalls are and how those would be perceived. You need to be very realistic about the value that would be added by acquiring your business and what a buyer would be realistically willing to pay.

If the acquiring company is going to need to spend money to get the additional growth that needs to happen, the existing owner can't expect to get paid for growth that they aren't delivering. In a frothy market with really high multiples, that's one of one of the areas that gets challenged a lot. ‘OK, here's all the opportunities to grow this business and therefore it's worth 14 times.’ The fact of the matter is the acquiring company looks at it says, ‘Yes that growth is achievable. But I've got to put x million dollars more into this in order to truly achieve that growth. Therefore, I'm not going to pay you for it. I'll pay you based on what you brought to the table.'