Deal Profile: Imperial Dade

In the past two decades, the foodservice sector has experienced steady, reliable growth. As we explored in a previous article, “Serving Up Growth: Diverse Opportunities Across the Foodservice Value Chain,” consumers’ tendencies to cook less in their homes, the plethora of restaurant concepts (both eat-in and takeout) available to consumers, and the industry’s demonstrated resilience across economic cycles have made foodservice a consistent bright spot.

Given this, it’s not surprising that buyers are taking notice, and seeing the sector’s players as increasingly attractive targets. This is especially true of the distribution segment of the foodservice value chain and, more specifically, companies that distribute the array of disposable/consumable non-food goods that are vital to operating restaurants, hospitality and entertainment venues, healthcare and educational institutions, and a broad array of other end markets.

This subsegment has certainly seen a surge in demand as the broader sector itself has grown. But what makes it especially appealing to buyers is its fragmentation: The disposables/consumables distribution subsegment of foodservice comprises hundreds of small to midsize distributors, many of which have a limited geographic focus, and very few players of scale.

Yet, there’s considerable pent-up demand from customers for a larger specialty distributor that can keep pace with their growth, as well as from manufacturers and vendors that increasingly want to do business with fewer, larger and more sophisticated distributors.

The Opportunity for Buyers

imperialdade.gifTherein lies the opportunity: The segment’s smaller operators can be acquired at attractive valuations and, with a well-defined and highly executable playbook, combined into larger platforms that meet both customers’ and vendors’ needs.

One company that illustrates such an investment opportunity is Imperial Dade, which Harris Williams recently advised on its sale from Audax Private Equity to Bain Capital Private Equity LP. Founded in 1935, Imperial Dade is a leading distributor of disposable foodservice and janitorial supplies in the Northeast, Mid-Atlantic, Southeast, Southwest, and Midwest regions and Puerto Rico. Since CEO Robert Tillis and President Jason Tillis assumed their roles in 2007, the company has grown both organically and through acquisitions, completing 16 since 2016.

“Robert and Jason Tillis, in partnership with Audax, have built a company that is a clear market leader and thrives on a culture of innovation and unwavering service to its customers,” says Bob Baltimore, a managing director in the Harris Williams Specialty Distribution Group.

Five Key Value Drivers

Imperial Dade’s growth and leadership position can be attributed to five key factors that should be important to any prospective buyer considering a target in this space.

1. Disposable, low-ticket products

At a basic level, almost all of Imperial Dade’s main products are disposable, which translates into highly recurring purchases and, thus, a steady, largely predictable revenue stream. These products include chemicals such as cleaning fluids, disinfectants, and waxes and polishes; disposable products such as paper bags and napkins, plastic cutlery and plates, wrapping and packaging films, containers, and trays; and janitorial supplies such as tape, brushes, mats, mops, and sponges.

The company’s products are also relatively low-ticket items that businesses need for their daily operations, which means consistent demand and resistance to economic downturns. “The items Imperial Dade sells are essential to daily operations. If a foodservice provider doesn’t have them, it can't operate,” says Graham Gillam, a vice president in the Harris Williams Specialty Distribution Group.

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Additionally, with foodservice being a highly competitive sector, companies increasingly see disposable/consumable products as tools for differentiating their offerings. “The cups, the packaging, the napkins, even the hand soap in the bathrooms—it’s all part of the customer experience that companies are trying to deliver to make them stand out from their competitors,” notes Anthony Basmajian, a director in the Harris Williams Business Services Group.

2. Innovative solutions beyond commodity-type products

Importantly, Imperial Dade has built on these basics, going beyond simply providing products. “Their focus is being the best partner they can be for their customers and anticipating and providing the crucial solutions and services their customers need to make their businesses better and operations easier every day—everything else falls in line from that,” says Baltimore.

This manifests itself in a number of ways. For instance, the company is constantly innovating, expanding, and optimizing its product portfolio and developing solutions that meet other needs its customers have.

“The company has done a great job of always thinking beyond disposable and consumable products—always looking to build deeper capabilities and bring new innovative solutions to customer challenges, and never accepting that they are ‘just a distributor’ of products,” says Gillam. “It’s a very customer-centric philosophy that pays dividends for customers, while making Imperial Dade’s customer relationships ‘stickier’ and more durable, and making the company a valuable and integral part of its customers’ businesses.”

Consider the company’s work with hotels. Instead of being content with selling cleaning supplies and paper products to hotels, Imperial Dade offers a wide range of services specifically for the hotel industry—including housekeeping procedural training, laundry system expertise, monthly preventive maintenance, sustainability consulting, and warewashing chemical programs (i.e., the chemicals used to optimize the cleaning and sanitizing of such things as utensils and food-contact equipment surfaces).

Other programs Imperial Dade offers customers include its EatSafe Program, which addresses food safety protocols for front-of-the-house areas; its HyProtection Zone Program, which offers specialized solutions for the healthcare market segment, including acute care, surgical centers, long-term care, and assisted living; and its Greensafe Program, which provides sustainable products and solutions for facilities maintenance and foodservice operations.

3. High-touch service

Imperial Dade also prides itself on its high-touch, consultative approach to customer service, which takes many forms:

  • The technology the company provides that enables customers to seamlessly and conveniently order and pay for goods.
  • The Imperial Dade sales force working closely with customers to educate them about the products they’re using, providing ideas on how to optimize their business operations, and developing new ways for customers to improve their own customer experiences.
  • The ability to have Imperial Dade delivery drivers arrive at customers’ sites at predetermined times to avoid disruption and ensure people are available on-site to receive the goods—something that’s especially important to customers in dense urban environments that don’t have the luxury of large supply rooms to store inventory.
  • The capabilities to design the most effective warewashing and laundry chemical mix for a specific hotel’s geography and water quality.

“The inherent value Imperial Dade brings to customers is much more than a product story or commodity sale,” says Baltimore. “Certainly, many commodity-type products get pulled through as a result of its consultative sales process. But the customers Imperial Dade regularly works with, those it has built close relationships with, benefit in so many other ways.”

Beyond delighting customers, this type of high-touch, consultative service has a secondary benefit: It’s a powerful tool for fending off a disruptive competitor such as Amazon, which is a key selling point to both strategic and financial buyers.

“Bundling together all of what Imperial Dade offers—the ability to partner with vendors to introduce innovative new products, to provide high-touch, true value-added service, to offer the back-end operational infrastructure necessary to support the delivery of millions of orders every year to thousands of customers—is very difficult,” Gillam notes.

4. Market-leading scale

Arguably one of Imperial Dade’s biggest advantages in the marketplace and a major driver of its leadership position is its scale.

Through a series of acquisitions, Imperial Dade has accelerated its ability to serve customers up and down the East Coast and into the Midwest. The company’s growing network of strategically located distribution centers with more than 650 fleet vehicles now delivers goods to more than 40,000 customers. This scale has enabled Imperial Dade to generate greater operational efficiencies—and, thus, continually improve its margin profile—while fulfilling the pent-up demand from large, multi-location foodservice and hospitality customers for a specialty distributor that is focused on exceptional service and is big enough to meet their geographical footprint needs, particularly as they grow.

This is especially true of fast-casual, quick-serve restaurants, which consume an extremely broad SKU set of disposable products and are proliferating rapidly. These establishments need consistency of service and supply, and a partnership dynamic that gives them access to recommendations and product innovations—and they need it on a very large scale. Similar opportunities exist in the supermarket and hotel segments, which historically have been underserved.

imperialdade-image.jpg“With no true national distributor serving the sector, there’s a pressing need for a specialty player that can be that one-stop shop—that can bring unique and innovative products to the market, help customers optimize their business, and be a strong partner in servicing customers’ needs,” says Gillam. “Imperial Dade is stepping in and seeing great success and great interest from customers that have been hoping for a partner like that and are excited to find a solution. And as the company continues to scale, it will have the opportunity to do that on a national level.”

Imperial Dade’s scale is also a boon for vendors, which prefer to do business with bigger, more sophisticated distributors with large, savvy sales forces that know how to introduce and sell their products. Potential buyers valued the company’s scale as well, as it was one of the few platforms in the market sizable enough to “move the needle” in terms of growth.

“Those are all traits of Imperial Dade,” Baltimore notes. “Its sales force is second to none. It’s large—500-plus professionals who can go into customers’ sites and effectively demonstrate the value to their business of a new packaging container, paper towel, or cleaning solution. That’s a huge benefit to the manufacturer.”

5. Intangible intrinsic attributes

Finally, a number of what could be called “intrinsic attributes” have helped shape Imperial Dade into a major success story.

One such attribute is the company’s management team, which has proven again and again that they can deliver on the results they commit to—whether that’s getting synergies from an acquisition or hitting organic growth targets.

“Great management teams with proven track records are highly sought after, understandably, and that’s where Imperial Dade’s success really starts,” Basmajian says. “The full executive team is hungry for success, but humble, wants the company to become a world-class operation, and is always looking for opportunities to partner with bright people and thoughtful leaders to improve their operations.”

An example is the company’s success with its own acquisitions. Imperial Dade’s management team has a clearly defined and highly effective M&A playbook that has enabled the company to identify, underwrite, and execute deals so the acquisitions’ performances after joining the Imperial Dade family matched, or even exceeded, what management anticipated.

The company further displays this “get it done” attitude when it comes to its customers. “They will always do what they need to do to meet the customers’ expectations,” Gillam notes. “That’s a testament to Imperial Dade’s sales force and leadership, which has excelled in developing strong, long-term customer relationships and being highly adaptive to customers’ needs.”

Another important attribute that boosted Imperial Dade’s appeal is the company’s commitment to investing in the business—whether that’s in new technology, people, capabilities, or facilities—to support growth. “Management’s not afraid to admit where the company may need to improve, and then make the necessary moves to continue to evolve the business,” Baltimore observes.

Replicating Imperial Dade’s Success

As noted, the foodservice industry continues to enjoy robust, steady growth, and myriad opportunities exist for buyers in the sector broadly, and distributors, more specifically.

When considering distributors in this space, buyers would be well-served to look for prospective targets that share the characteristics that have made Imperial Dade successful and an attractive acquisition in its own right:

  • Steady, predictable revenue based on consumable products that are key to customers’ operations
  • Culture that fosters innovation and a desire to continually develop new products and solutions that address customers’ needs
  • Unwavering commitment to providing the highest level of customer service
  • Sufficient scale to unlock efficiencies and more effectively serve multi-location customers
  • Management team with a proven ability to execute and scale the business to keep pace with customers’ growth 

“In a space like this, which is getting more popular and attracting a lot of interested buyers, you need to make sure you are backing the right players,” says Baltimore. “The most exciting prospects are distributors that know what their customers need and continuously evolve their products, services, and capabilities to meet those needs. A track record of innovating, whether on the product side or the service side, or both, and the ability to find ways to be more valuable and indispensable to customers, are the biggest keys to success in this hyper-competitive environment.”

Published August 2019