Some leveraged buyouts of the 1980s were profitable successes, and some were overtures to bankruptcy. Both kinds made headlines.
JP Foodservice Inc.'s LBO was a third type: not disastrous, but ultimately draining and undistinguished. The Columbia-based restaurant supplier has quietly lost money every year since 1989, when a group of managers bought it for $317 million from PYA/Monarch and loaded it with constricting debt.
Now, thanks to a recapitalization and public stock offering, JP has the balance sheet that its admirers believe it always deserved. And, management hopes, it has the freed-up cash to generate profits -- and growth in a tough industry.
It plans to add to its $1.03 billion in sales not only by finding new customers and selling more to the ones it has, but also by buying up smaller distributors, according to documents filed with the U.S. Securities and Exchange Commission.
The plan may work, some analysts believe. "The industry is still fragmented and there's ample room for growth," said Charles Ronson, who publishes the IPO Value Monitor, a New York-based newsletter.
But it won't be easy. Selling wholesale to restaurants, schools, prisons and employer cafeterias "is a very, very competitive business," said Jeff Metzger, editor of Food World, an industry trade publication.
"JP is a significant player and has been around for a long time," he added. "It's taken them quite a while to get to a point where they could do a public offering."
JP managers declined to be interviewed, citing federal laws that restrict management's public statements when stock is issued. But a prospectus filed with regulators details JP's condition and plans.
The company calculates that it is the No. 6 food service distributor in the country in sales. It employs 2,100 people and operates nine large warehouses across the Northeast and Midwest and has customers from Virginia to Maine and stretching west to North Dakota.
Its corporate genealogy chart starts with Monarch Foods, founded in 1853. Monarch was bought by what is now Sara Lee Corp. in 1946. In 1989, management bought the JP operations from PYA/Monarch, borrowing millions of dollars to do so and pledging JP's assets and future cash flow in return.
The resulting hefty interest payments sapped JP's profits. The company lost $33 million over the next five years. But it continued in operation, serviced its debt and even managed to increase sales in what was a very difficult time for food companies.
There are easier ways to earn money than by supplying restaurants. The number of clients is huge. JP has more than 20,000 customers, many of them mom-and-pop diners, each requiring regular deliveries, credit arrangements and other costly attention.
The margins are thin. One percent of sales is normal.
And the competition is intense. Restaurants are famously fickle in their vendors, switching suppliers often or buying from several at once. Because restaurant customers don't see the packages that their food was delivered in, brand loyalty is scarce.
JP has boosted sales by more than 15 percent since fiscal 1990, and it cut its net loss from $9.3 million in fiscal 1992 to $1.8 million for the year ended July 2, 1994.
If the recapitalization and public offering completed last week had been made in 1993, JP said in its prospectus, the healthier balance sheet would have enabled it to earn $8.9 million for fiscal 1994.
JP issued 7.8 million shares to the public last week at $11 per share.
Swapping debt for equity and setting up a new borrowing facility were also part of its plans.
Business: Food distributor for 21,000 restaurants and institutions
Chairman, chief executive: James L. Miller
FY 1994 rev's: $1.03 billion
FY 1994 loss: $1.8 million
Facilities: Nine distribution warehouses
Issued at: $11
Monday's close: $11.25