Introduction
Discover how Mike Yarmou implemented a powerful business acquisition strategy that transformed a dying Italian bakery distribution company into a thriving frozen foods business. In this exclusive interview, Mike shares his journey from corporate professional to successful entrepreneur, detailing how he purchased a struggling business for $2 million and eventually sold it for 5X the acquisition price. His story offers invaluable insights for anyone interested in acquiring distressed businesses and implementing successful turnaround strategies.
Founder Success Story QnA
Can you give us a quick intro about yourself and how you got into buying a business with partners?
Thanks for having me. I’m originally from Toronto, half Toronto, half Chicago. Currently, I’m a managing partner with a distressed PE firm called New Point Advisors. We work with distressed businesses in the $10 million to $100 million range. I got into this space after acquiring and running an Italian bakery distribution company with a couple partners several years ago. Before that, I was just a corporate guy earning a six-figure salary with office perks. I had been entrepreneurial in the past with some side projects, but with a family and mortgage, I was doing the corporate job.
How did you find the business you eventually acquired?
They really worked with a lot of business brokers to scour the market. Even though they had some established footholds in the markets that this company did business in, it was an easier transition. For anybody looking for a business to buy, a broker’s a good first step. We ended up dealing with a broker as that middle person between us on the firm side and them on the selling side. The due diligence and acquisition process was run through a broker.
What was the company like and what did you learn right after acquisition?
It’s a distribution company, similar to like a Sysco or GFS. They bring products in from manufacturing companies, warehouse them, and then ship them off to hotels, restaurants, banquet halls – anybody who can’t buy in pallet quantities. This company’s main source of revenue was Italian bakeries – flour, sugar, corn starch, all products that go into making muffins or croissants. The company was 25 plus years old with an owner who was really checked out, close to retirement, just coming in once a week to make sure the lights were still on and bills were paid. He wasn’t pushing the business, bringing in new products, doing customer acquisition, or taking price increases.
How did you get comfortable with the fact that revenue was declining?
When you don’t have an owner who’s necessarily bringing a new product or pushing for more account growth or any tactful things to drive revenue, you know, a price increase hadn’t been taken in five plus years. Guarantee you the cost of flour and sugar had increased quite a bit in those five years. So it was as much of a margin squeeze as it was a revenue decline. The bakery business was actually growing. We took a look at the entire market and said Italian bakeries might not be an increasing business, but bakeries in general are. Coffee shops – it seems like there’s a fancy coffee shop on every corner now. I thought if I just picked up a small market share of even those guys, I can turn this business around pretty quickly.
How did you approach existing clients before acquiring the business?
It’s part of the due diligence process. We didn’t want to do it, but we needed that heads up from these customers prior to signing the purchase agreement. So much of the revenue was dependent on 20 percent of the customer base. If that 20 percent went away, then the whole thesis around why we acquired this company went away. The ownership had a long-term relationship and was comfortable enough to show his hand to his customer base to say, “Hey, I’m well into my 70s, got no next generation to pass this on to, I need to move this business somehow. These are the guys to do it.” He actually did a really warm hand-off to me. I wasn’t comfortable to put any money down on this business without having to meet those customers.
What happened after you acquired the business?
Little did we know that they were paying us lip service. All of a sudden we found sales dropping even quicker after we took the business over. We knew there would be a trend line slightly down, but it was much quicker than we thought. It was coming from these top 20 percent of customers. These one-off flour and sugar guys were putting stuff in the back of their van. They smelled blood in the water. They knew that a new vulnerable ownership team without that long history had taken the business over. The chatter had gotten out into the industry and they started slashing and burning their prices and trying to chase us away.
What did the pivot to frozen foods look like?
We went from an Italian bakery distribution business into a frozen foods business. I took a look at the market and said, “Where are the holes?” Food distribution is a huge business because you can drive on the highway and see tons of food delivery trucks all over the place. I knew frozen foods was likely a good next step for several reasons. Number one is the margins are quite a bit higher. The cost to serve is higher because it has to be kept at a certain temperature. Handling frozen foods is very different than handling flour, sugar, yeast. The staffing needed to be able to sit in a freezer for two or three hours and pick product is a very different proposition that had scared a lot of other companies off.
How did your industry knowledge help with this pivot?
I would say yes and no to being an industry insider. I was not necessarily in distribution, I was more into manufacturing. The way I actually came up with the insights was not from institutional knowledge, it was from going out and talking to customers. I probably talked to 200 chefs and restaurant owners and grocery store owners and food beverage managers. I wanted to find out what they were struggling with. This was after we had already acquired the business and I knew I was in a losing market. I figured out pretty quickly that I can’t compete in the price race to the bottom game. I wanted to margin this business up, not margin it down. So I wanted to get the margins up to be more sustainable so we can reinvest in the business.
How did talking to customers help you gain insights?
Every single chef I asked what they were struggling with came back and said, “I’m not necessarily happy with my frozen foods business.” That was the key insight for me. I might be able to speak their language a little bit more by being in the food and beverage industry, but I didn’t necessarily come up with that insight going into the business. It was really talking to customers and finding out what they’re struggling with with their current solutions. When you’re talking to a chef, you’re kind of running around with them while they’re operating their kitchens. I needed those insights, and if I can solve a problem for them, they were happy to sit down and chat with me.
How did the frozen foods strategy work out?
It worked. Initially, I went off and started doing the selling. I wanted to make sure that I understood all the processes before developing a sales playbook and pushing it over to a sales team. We had enough initial success. A lot of the work had been done on bringing in new suppliers. I talked to hundreds of different frozen food suppliers who were disenchanted or disenfranchised from working with Sysco and GFS because they’re carrying a very narrow SKU set. They could never really launch what they were selling into certain food service markets because the bottleneck was the distributor. All of a sudden I’m saying, “Now you can get it to market, here I am.” So I had a huge rush of different suppliers come my way.
Can you share the numbers behind the business?
The business was doing about $7 million when we bought it. We bought it for low seven figures, about two times on earnings. It was a very tight margin business with a very high amount of overhead. There were a lot of cost inefficiencies in the company that we could leverage – too much manpower that was just constantly thrown at the business instead of technology. We more than doubled off that base that we expected to, obviously we declined based on having a poor business plus a transition, but then more than doubled off that base. Not only that, we were able to expand margin. Now we’re in a product and channel that we have a unique product and a unique way to go to market because we’re only a freezer truck.
How did the exit from the business happen?
We ended up doing some tuck-in acquisitions as well. We had extra capacity in our warehouses as we grew. There were areas of opportunity in other temperature zones that we felt competition wasn’t doing too well. Our customer base didn’t want as many trucks coming to their loading docks, so they were looking at consolidations. We felt we should consolidate along with our customer base. After a period of five years, we weren’t intending to sell, but we had gotten to a point and gotten enough buzz in the industry. Eventually, we had an offer from a larger distributor, much bigger regional distributor than we were, who wanted to acquire our portfolio and our capabilities.
How did revenue growth affect the multiple when you sold?
We ended up selling it for 5x of what we acquired it for. Because we hit certain earnings thresholds, the quality of earnings goes up a lot, much more bankable once we got to the size that we did. You can start doing asset-based lending or get better terms with your bank, so your cost of capital decreases and your ability to finance growth increases. There’s a lot of benefits from scaling and hitting certain thresholds – half a million in earnings, a million, and two million are key thresholds to cross over when you’re talking about your cost of capital. You become the prettiest girl at the dance as soon as you start hitting these thresholds to certain bankers.
What content are you creating about business acquisition?
Whether it’s with my own capital or with my LP partners’ capital through New Point, I’ve run dozens of distressed businesses. Currently, I’m the CEO for a distressed consumer package good business out of Rhode Island that we’re trying to turn around. I’ve got a deep reservoir of what I think is a very niche and interesting part of business. This is not something you learn in an MBA or any school course in terms of what a distressed business looks like and the tactics you need to take to acquire and turn around a distressed business. I’m trying to meet the demand I see in the market. A lot of people want to know how to source a distressed business, what’s the process to turn around because it is very process-driven.
Mike Yarmou Business Stats
Mike transformed a struggling Italian bakery distribution business into a thriving frozen foods company. Here are the key statistics from his business acquisition journey:
- Acquired business for $2 million (low seven figures)
- Initial revenue: $7 million annually
- Sold business for 5X acquisition price
- Grew from 2X earnings multiple to higher multiple upon exit
- Pivoted from Italian bakery distribution to frozen foods
| Business Metric | At Acquisition | At Exit | |
|---|---|---|---|
| Revenue | $7 million | $14+ million | |
| Business Value | $2 million | $10 million | |
| Earnings Multiple | 2X | 5X+ | |
| Business Focus | Italian bakery distribution | Frozen foods specialist |
Mike Yarmou Method
Mike’s approach to turning around a distressed business involves several key steps that focus on customer insights and strategic pivoting rather than just cutting costs:
- Thorough due diligence including customer interviews before acquisition
- Identifying market gaps through extensive customer conversations
- Pivoting business model based on customer pain points
- Maintaining customer communication throughout transition
- Strategic tuck-in acquisitions to accelerate growth
Mike Yarmou Tools
Mike utilized several key tools and strategies to implement his business acquisition and turnaround strategy effectively:
- Business brokers for sourcing acquisition opportunities
- Customer interviews to identify market gaps and pivot opportunities
- KPI tracking for fill rates and delivery time windows
- Customer communication through regular updates during business transition
- Supplier relationship management to secure unique product offerings
Key Notes
Mike’s business acquisition journey offers several important lessons for aspiring entrepreneurs looking to buy and turn around distressed businesses:
- Declining revenue doesn’t necessarily mean a business has no future potential
- Customer concentration risk must be addressed during due diligence
- Industry knowledge helps but customer insights are more valuable for pivoting
- Scaling to certain earnings thresholds significantly improves business valuation
- Sometimes the best strategy is a complete pivot rather than incremental improvements
Get Started in Just 5 Steps
If you’re interested in following Mike’s path of acquiring and turning around a distressed business, here are five key steps to get started:
- Build relationships with business brokers in your target industry
- Secure access to capital or partners for acquisition financing
- Develop a thorough due diligence process including customer interviews
- Create a 100-day plan for post-acquisition business assessment
- Establish clear KPIs to track business performance and pivot opportunities
Conclusion
Mike Yarmou’s successful business acquisition strategy demonstrates the incredible potential of buying distressed businesses and implementing strategic turnarounds. By acquiring a struggling Italian bakery distribution company for $2 million and pivoting to frozen foods, he was able to sell the business for 5X the purchase price. His approach of focusing on customer insights, maintaining communication through transitions, and scaling to key earnings thresholds provides a valuable blueprint for aspiring acquisition entrepreneurs. Mike now shares his expertise through his content and upcoming course, helping others navigate the specialized world of distressed business acquisitions.