FER Exclusive: How TriMark USA Reached $1 Billion In Annual Sales

TriMark USA, the South Attleboro, Mass.-based, multidivision dealership, had a big year in 2014. It reported $1.072 billion in sales in 2014 for Foodservice Equipment Reports’ annual verified Top Dealers Report. And late last summer, New York-based private-equity firm Warburg Pincus signed on as the company’s new sponsor. TriMark management continues to own a share of the company.

In an exclusive interview, FER Publisher/Research Editor Robin Ashton asked TriMark President/CEO Jerry Hyman to discuss how TriMark has negotiated nearly a decade and a half of private-equity ownership, how and why TriMark reached the billion-dollar hurdle and what lies ahead for the company.

(Disclosure: The Gill family, which sold two dealerships to TriMark in 2007, owns a majority interest in Gill Ashton Publishing, the parent of FER.)   

Robin Ashton: Remind us of TriMark’s history.

Jerry Hyman: It all started in 1947 when Harry Halpern founded United Restaurant Equipment [later renamed United East to distinguish it from another East Coast dealership with the United name]. Bob Halpern hired me in 1981. Halpern sold United East to the private equity firm Bradford Equities in 1998 [the same year QualServ and Strategic Equipment—the other two major dealer “rollups”—began]. Audax Group acquired TriMark USA in late 2006. Then Warburg Pincus bought us last year. Coincidentally, both Bradford and Audax owned the company a little over seven years. Both were quite patient by private-equity standards.

What PE companies look for are highly fragmented industries, stability (yes, this is a stable industry), consistent growth and continuing growth potential. And then they are averse to risk.

Most don’t recognize the stability and growth in the foodservice and foodservice equipment and supplies industries. Take the clients we service: Growth in restaurant sales was positive every year from 1971-2014, except 2009. Since 1980, consumption of food consumed away from home has grown dramatically. And the PE companies like the capital goods side of foodservice more because it has higher margins than consumables.

Ashton: Give us the details of TriMark’s growth during the past five years. How much of that growth has been by acquisition; how much was organic growth?

Hyman: If you go back to 2009, Edward Don was at $553 million, TriMark at $507 million and Wasserstrom at $429 million. Then it dropped to Strategic Equipment at $192 million.

Since 2010, we have done only three acquisitions:

Strategic at $224 million in 2013 as well as two small companies with less than $15 million in revenue combined. So of the growth of the past five years, we purchased $239 million and the rest was organic. In the five-year period, we’ve had cumulative average growth of 14.1% without acquisitions. Last year, we went from $944 million to $1.072 billion, so that’s organic growth of 13.5%.

Ashton: What has been your acquisition strategy; that is, do you fill in regionally and/or by niche?

Hyman: Our strategy is very formal. Three criteria have to be met before we even look:

• The company must be profitable. Many good companies are just not profitable.

• It must have a seasoned management team willing to stay in place. We don’t do exit strategies. We don’t have a deep bench. Management must buy in and be part of it.

• And, it must be a philosophical fit in the way they go to market. It has to be a match in how they treat employees and customers.

Once these criteria are met, it’s a matter of either segment or region. We don’t buy just because it’s there. Finally—and this is important—only one of the companies we’ve purchased over all of these years was for sale. We actively sought out the others.

Ashton: Why did Audax hold on to TriMark so patiently? That’s not typical of private equity.

Hyman: For the same reason Bradford did. We present a very attractive exit strategy for private equity. Under Bradford, we grew from $50 million to $250 million. At $250 million, when Audax bought us in 2006, they sold us last year at $1.072 billion with little if any additional investment.

Back in ’06 when I presented the company, all of the analysts would ask the same question: “What happens in a recession?” When I tried to tell them we knew how to manage that, they were skeptical. And in fact, during this recession, TriMark not only survived, but prospered as it leveraged its size and stability.

Ashton: What does Warburg see in you?

Hyman: They learned a lot about the E&S industry through Scotsman. But think how validating it is to everyone in this industry that they choose to reinvest in the distribution side of foodservice equipment after learning about it all on the manufacturing side. They did a lot of work and wrote a big check.

It’s good for the whole industry. It’s amazing, but after the deal, we decided to have our debt rated by Moody’s and S&P. We received an excellent rating from both, which is also good for our industry. If Warburg thought there was a remote chance of this channel disappearing, they would’ve invested elsewhere.

Ashton: What are the trends in the E&S distribution market that favor a company with TriMark’s structure and scope?

Hyman: There are a number of things. We’re seeing more emerging chains than ever before. They are making the leap from local to regional to national more quickly than ever. Lots of private equity is involved. Some will make it. In contrast, a lot of older chains are struggling. It’s a perfect storm for some of them.

These cool, emerging chains have lots of things going for them post-recession: lots of money, the growing influence of millennials. There are a ton of these. And companies like TriMark are positioned to help them grow. It’s right in our wheelhouse, with so many locations in so many major urban areas. TriMark has 29 locations where we have leases and pay rent. And we currently have 14 distribution centers.  It’s one of the ways we can outperform the market by three or four times.

The other significant advantage we have at TriMark is the tenure of the people running all of the dealerships. Even at our size, you cannot overestimate the importance of people. There is significant advantage in longevity. We have hundreds of years of combined experience.

Ashton: Why has TriMark prospered while other rollups—or even the big multibranch broadliners—have not?

Hyman: When it comes to the other rollups, it’s the people again. We’ve been fortunate to have our partners remain with us throughout this journey.

The only advantages a broadliner would have are technology, price and inventory close to the customer. We and other dealers have countered all of those advantages. In fact, there is no advantage to go with a broadliner vs. an E&S house. We’re all in buying groups, which levels the price advantage. And with all of the value-added benefits a dealer provides, why would they not buy from us? And that’s not just us, but any dealer.

Ashton: Where does TriMark go from here? Does E&S distribution generate enough consistent profit to realistically go public?

Hyman: When Sysco went public, there was less margin in food than in our stuff. But going public is just one possibility.

Ashton: It’ll be interesting to see where those possibilities lead.