Purchase and funding to expand a retail nursery into a wholesale powerhouse

Background/ Situation

Our client, a retail nursery, wanted to purchase an established propagation nursery owned by a major insurance institution. Their objective was to enter the nursery wholesale trade and become more competitive at the retail level. Funding for this initiative was sought from an Asian investor who had similar investments in Australia.

Our brief was to negotiate the purchase of the propagation nursery and to structure the acquisition into three equal shares amongst individuals from totally different cultures. The project was driven by our client, the first partner, who was exceptionally knowledgeable in plants and retailing. The second partner was the Asian investor and the third was an Asian immigrant who worked in collaboration with the main investor. MACHUS Solutions was also required to assist with the on-going financial management of the venture.

Initial Findings

Upon engagement, MACHUS Solutions undertook a preliminary investigation of the business. The investigation revealed:

• The insurance institution (the vendor) wished to dispose of the retail nursery as it was a non-core asset
• A low price was foreshadowed because the vendor’s priority was to dispose of the asset
• The business had been managed poorly and was unprofitable. It was also found that it had been losing market share
• The land measured almost 100 acres and was extremely fertile with access to ample water supply. However, the hothouses and other facilities were antiquated and thus insufficient to grow the business
• There were almost 40 employees, most of whom were union members
• The business had a high reputation for the quality of its plants
• There was no evidence of any marketing activities. Wholesale clients just called and ordered product
• Reporting was poor and lacked accuracy

Solutions, Strategies and Recommendations

MACHUS Solutions recommended the following strategies:

• Purchase the propagation nursery for a set, pre-agreed price
• Structure the equity of the business ensuring each partner received an equal, one third share in the venture
• Because of his experience and life-long involvement in the nursery industry, our client should be the Operations Manager and CEO
• A relative of the main investor should be responsible for administration and bookkeeping
• We proposed a Shareholders Agreement to help manage the partnership and minimise potential disputes
• Expand the facilities and capacity of the nursery as soon as practical
• Introduce periodic marketing activities, including research and promotions

Implementation and Results

The business was purchased at a very favourable price and it was financed as originally planned. Management practices were also adapted to cater for the different people from different cultures involved with the business. The nursery facilities were expanded and management was changed after a relatively short time. The original brief was met and MACHUS Solutions was further engaged after the initial agreement to deliver other consulting services including mentoring.