Here's an excerpt (leaving out some plant links) from Dec. newsletter:
I'm sure we all wish Tony a successful 2011.Seasons Greetings and Happy New Year from all of us at Plant Delights Nursery! We’ve made it to the end of another year and we are already looking forward to a fabulous 2011. On that note, the 2011 Plant Delights catalogs just have been mailed, so watch your mailbox for your copy which should be arriving soon. If you want to get a head start, our website has been updated at http://www.plantdelights.com, where you will find nearly 1000 additional plants that we just couldn’t fit in the printed catalog including many plants in limited quantities. As always, the new catalog is crammed full of goodies with over 100 new offerings for 2011. We also hope you enjoy the new website, as our staff has spent a phenomenal amount of time adding new features, improving the speed, and making the site more user-friendly.
I’m always amazed how many folks think we live in the tropics in NC, but we’re just digging out from a 9.75" snowfall...the 6th deepest since records have been kept in our region. Despite the early cold this fall (2 nights at 17 degrees F and one at 14.9 degrees F), we are welcoming a nice break from the cold as well as the exorbitant greenhouse heating bills.
Thanks to the early cold, many plants which often try to poke their heads above ground too early are still tucked away in bed like young children on Christmas Eve. Some years, we’ll often have Trillium underwoodii emerge in early December, but fortunately, so far there are no signs of foliage. Despite the low temperatures, we are already enjoying the flowers on Helleborus niger...especially the very early flowering forms from the Heuger breeding program. Also, the wonderfully fragrant winter-flowering Iris unguicularis are even showing a few flowers between snowstorms.
Earlier this year, we highlighted the financial troubles of South Carolina’s 686 acre Carolina Nurseries. In early December they finally closed up shop when the landowner repossessed the nursery property. This is yet another sad loss of one of the real innovative nurseries of our industry. We sincerely wish their 350 person staff luck at finding new positions within the industry.
If that wasn’t enough, on December 17, a bankruptcy judge signed the order to sell off the assets of Hines Nurseries. As I mentioned last month, Hines was formerly the largest nursery in the country prior to its previous bankruptcy in 2008. Hines is currently owned by a private equity firm, Black Diamond Capital Management. As I’ve mentioned many times, a financial strategy involving a nursery and a venture capital/private equity firm is like a deadly drug combination...it may make you feel really euphoric for a while, but it ultimately results in a painful death. So, if you’ve been sitting on a ton of cash and looking to lose much of it by getting into the nursery business, bids for Hines will be accepted until February 25, 2011 at the offices of Pachulski Stang Ziehl, & Jones LLP of Wilmington DE. If there is more than one bid for the assets, bidders will be checked into a nearby mental health facility while an auction determines the loser...I mean the new owner.
One of the larger nurseries in the country that hasn’t filed for bankruptcy is the Berry Family Nurseries (BFN). Started in 1993, BFN now has over 8,000 acres in production. Over the last few years they have actually acquired several other financially distressed nurseries. Their empire, headquartered in Oklahoma now includes Zelenka Nursery, Zelenka West Nurseries and Tri-B Nursery, with operations in Florida, Michigan, North Carolina, Tennessee, and Oregon. All seemed well until December when they sold substantially all of their operating assets to...you guessed it...a private equity firm, Insight Equity II LP of Dallas. Trade magazines are already spinning this as a great business move, but I actually got a bigger laugh when I read the comments from the involved parties below who have obviously consumed too much nursery kool-aid.
Chris Zugaro, a Vice President at Insight Equity, said, “Insight Equity and BFN are committed to the nursery business and look forward to considering further investments in the space in the future.”
Conner Searcy, a Partner at Insight Equity, said, “BFN is now the market leader in the wholesale nursery perennials and woody ornamentals industry and this transaction solidifies the company’s business and positions it for growth.”
Bob Berry, CEO of BFN said, “We believe this transaction positions BFN to succeed and grow while maintaining a commitment to delivering excellent customer service and superior quality.”
Reading this, I’m reminded of the favorite George Santayana quote, “Those who cannot remember the past are condemned to repeat it.”
If you wonder what most of the recently defunct nurseries had in common, you don’t have to look far. They all relied on someone else’s money to operate. This practice comes from a desire to grow more rapidly than they could from their own cash flow, combined with a dependence on tax CPA’s for business advice...a difficult lesson we learned the hard way a decade earlier.
There are very few nurseries without an operating line of credit, since nurseries are a very seasonal business...making money for six months (or less) and losing money for six months (or more). It’s much simpler to have a line of credit from a financial institution than to put away money for these “rainy” months...or in the current case, years. Up until the last few years, agricultural-based banks were great to work with, because they typically have realistic financial return expectations. For higher volume loans, venture capital or equity firms usually get the call. I have yet to hear of one of these that had long-term realistic financial return expectations from a nursery business.
Operating with your own funds isn’t as easy as it sounds, because after a good year, a large wholesale nursery can make a nice profit, resulting in a huge tax bill. It is a tax cpa’s job to keep tax bills to a minimum...made more important by the Federal government’s desire to tax high earners (aka profitable businesses) at a much higher rate. To lower a nursery’s tax burden, businesses are advised to purchase extra equipment before year’s end and subsequently use someone else’s money to operate until the sales season kicks in.
Don’t get the idea that I never advocate using a line of credit, but it’s all about maintaining a reasonable debt ratio...the amount of money you owe (liabilities) divided by the value of your business (assets). If a business keeps their dept ratio low, they can pay off or at least continue to service their debts during a time of economic uncertainty. If, however, their debt ratio is too high when the economy goes south, guess what...you’re outta’ here.
Even business owners who aren’t gamblers by nature get sucked into a black hole of debt by following tax cpa’s advice to reduce tax burdens through end-of-year spending. The choice sounds simple...either pay a huge chunk of money to the government or buy that new tractor and potting machine that you’ve been eyeing. It’s amazingly easy not to notice how deep the debt hole has become and dismiss financial warning signs...as long as sales growth remains on a steady increase.
In our August 2009 newsletter, I mused about Monrovia Nursery’s announcement in trade publications that they had boasted about securing $100 million dollars in working capital (line of credit). My concern was exactly as I have outlined above...if you need $100 million in working capital, then something is very wrong. See if this quote below doesn’t sound out of the same box as the BFN quotes above. "GE Capital continues to provide us with the liquidity we need to meet our business objectives," said Tyler Page, CFO of Monrovia Nursery. "Especially in this environment, having a lender who truly understands our business and delivers on what they promise is extremely valuable." (June 29, 2009)
Well, here we are just over a year later and guess what? Monrovia’s financier, GE Capital Markets is putting the squeeze on Monrovia to dramatically boost sales immediately...or else. Up until now, Monrovia has only dabbled in the low-end box store market in favor of independent garden centers, since the former has killed off more large wholesale nurseries than Irwin Allen did movie extras. GE Capital is insistent that if Monrovia doesn’t dramatically increase sales immediately, they will require them to dump lower-priced plants into the box stores, which they obviously don’t realize would be deadly. Case in point...Hines Nursery, a formerly hugely profitable nursery until they started selling to the box stores...now nearly defunct. Oh well, I guess some people will never learn.
Thanks for taking time to read our newsletter and we hope you will enjoy the new catalog and website.
-tony
Barb
