Sweet acquisition

Sweet acquisition

Corporate gift-basket business grows through buyout

by Liz Wolf  

The owners of Deephaven-based What A Gift!, a corporate and special occasion gift basket company, received a phone call in February 2002 that would forever change their business.

Simple Gourmet, one of their biggest competitors, made them an offer that was as tempting as the chocolates, cookies and other gourmet assortments that fill their executive gift baskets.

Simple Gourmet owner Margaret Tortorella Cronin left a message saying she wanted to discuss an opportunity, says Betsy Discher, who launched What a Gift! with Tauron Ferguson in 1999. That opportunity was acquiring Simple Gourmet.

“After we picked our jaws up off the floor, we called her back,” Discher says. The partners had never done a buyout before, and it certainly wasn’t in their business plan. However, they say it was an opportunity just too good to pass up.

To help negotiate a deal, they brought in an attorney as well as St. Louis Park-based CEO Solutions Inc., which acted as a virtual CFO on their behalf. “They offered a perspective and a level of experience we couldn’t,” Discher says. “They advised us, from a financial perspective, on the most advantageous way to structure the agreement.”

What a Gift! hammered out a deal to acquire the competitor’s client list, but not through conventional means. “We structured a pay arrangement based on sales over a period of time,” Discher says. “That way we felt somewhat protected. We were an emerging business, and the last thing you have available is cash.”

The result is What a Gift!-Simple Gourmet, and the buyout paid off. The transaction resulted in posted sales increases of 100 percent from the previous year’s revenue. The partners expect sales to exceed $250,000 in 2003. Corporate clients, mostly in the Twin Cities, generate 99 percent of their revenue.

Following the acquisition, Simple Gourmet closed its retail store in south Minneapolis. Discher and Ferguson say they had no interest in operating a storefront, because it would deviate from their focus. They market their business to affluent corporate clients using print and online media, catalogs and direct marketing, including networking events and trade shows.

“They’re smart businesswomen and want to take their business to the next level. They’re always aggressively marketing themselves,” says Sheila Ronning, president of Minneapolis-based Sharp UpSwing, which runs the UpSwing Business Expo in the Twin Cities and manages the Minnesota chapter of the National Association of Women Business Owners.

“Their baskets are very high quality — not only the candy and food, but the packaging,” Ronning says. “There are plenty of gift basket companies out there, but they’re not the quality that What a Gift! is.”

Following the buyout, What a Gift! significantly broadened its client base. The company’s target market is the corporate client that needs gifts year-round — not just during the holidays. “The fourth quarter is the cherry on our sundae,” Discher says. “You can die by the cycle of this business if you don’t court year-round, repetitive business.”

Ferguson says Simple Gourmet’s corporate accounts didn’t overlap with their own, but complemented them. Cronin’s company “was in market segments we hadn’t penetrated,” Discher adds. What a Gift!, for example, was strong in the residential real estate market. Discher was an agent, and they tapped her relationships. “Right under our nose were agents, mortgage bankers, builders and remodelers,” she says. Simple Gourmet had connections with attorneys and accountants.

Also, What a Gift! had ties with the investment banking industry, while Simple Gourmet had relationships with traditional banks.

Ferguson says before the buyout opportunity came along, What a Gift! was on track for a successful holiday season in 2001. Then came September 11, and the corporate gift-giving business took it on the chin. “Gifts are perceived as a less-than-necessary item,” Discher says. “Also, we were heavily vested in investment banking, which took a huge hit after September 11.”

The buyout opportunity knocked at a good time, because Ferguson and Discher could tap into a wider client base. But like any deal, it wasn’t risk-free.

“We didn’t know how vulnerable the nation was,” Discher says. “Morale was low. The retail climate remained weak through the holiday season. There was no consumer confidence.”

But since that rough patch, there’s been a reemphasis on the value of business relationships, Discher says. “There’s big business in corporate gifts. People are finding it’s a good idea to convey just how important their relationships are.”

Nationally, the tough business climate weeded out the weaker gift basket companies, says Ange Brackin, general manager of Festivities Publication in Jacksonville, Florida. The company publishes Gift Basket Review, a national magazine with a circulation of 15,000, and sponsors annual conventions and trade shows. “Those who were weak got out, and the strong got stronger,” Brackin says. “The majority of the companies in this industry are start-ups, less than five years old.”

Brackin says the gift basket business can be quite lucrative for companies that have carved out a niche. Growing through an acquisition, she adds, seems a natural strategy for companies on the fast track. “It’s not unusual for people in this industry to be creative, and if they see an opportunity they take it. They’re entrepreneurs; they’re risk-takers.”

Ferguson, 46, and Discher, 48, have known each other for 18 years. They launched What a Gift! shortly after Ferguson was laid off from her job at a travel agency. The women borrowed the idea from Ferguson’s twin sister, who was running her own gift basket business in San Francisco. They came up with a business plan and marketing strategy, and incorporated the business. They self-financed the first year and later got a line of credit from First Minnesota Bank.

“We marketed it to everyone we knew,” Discher says. “Anyone who had invited us to a Tupperware party.”

They soon moved their operation from Discher’s home to studio space, which made the business a reality. “Now that we were paying rent, we couldn’t just dabble,” Discher says. However, they weren’t totally convinced yet that they should jump in feet first. Discher held on to her real estate license, and Ferguson returned to the travel agency part time.

“But we had a good first Christmas,” Ferguson says. “We looked at the sales volume and we were only working part time. We thought, ‘What would happen if we did this full time?’ ” In their first eight months in business they brought in around $30,000. Revenue more than doubled the next year. That was the proof they needed to quit their jobs and tend to the business full time.

It hasn’t always been an easy ride, but they agree it’s been a rewarding one.

“You have to be somewhat visionary and roll with punches,” Discher says. “That resiliency separates an entrepreneur from someone who is employed.”

Now, the women are expanding by adding their own line of chocolate. They have an exclusive agreement with United Kingdom-based Royal Favourite Chocolates to sell the candy in the United States. “This will give us national and even international exposure,” Ferguson says. “We think there’s huge potential.”