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Experts: M&A won’t solve business problems

Shirley Mills speaks at the Grassi & Co.

Shirley Mills speaks at the Grassi & Co. Manufacturing & Distribution Executive Forum as fellow panelists Paul Vertullo, Chris Sanborn and Joseph J. Ferrara listen during the discussion on mergers and aquisitions Wednesday, November 16, 2016. Credit: David L. Pokress

Struggling businesses that try to solve their problems through mergers and acquisitions are often disappointed.

That was the consensus among Long Island investors and executives who spoke last week in Westbury at a forum on M&A as an avenue for growth for manufacturers and distribution companies.

M&A activity has increased both locally and nationwide in recent years. In the past month three manufacturers — Aceto Corp. in Port Washington, PL Developments in Westbury and Chembio Diagnostics Inc. in Medford — have announced deals to buy companies in their respective industries.

“Make sure you have your house in order before you pursue an M&A strategy,” said Robert Devine Jr., a partner at Grassi & Co. accountants in Jericho and former CEO of the pet-food giant Hartz Mountain Corp. in New Jersey.

Devine said many companies lack “a clear vision” of what they do, why they do it and where their future lies. Some also don’t know how “to engage” with employees to face the challenges of a rapidly changing marketplace.

“M&A isn’t an answer if your business has problems; it never is,” he told about 120 executives at the Wednesday event held by Grassi in The Space events hall. “But if you are prepared, M&A can be an answer to grow your business or to exit [to sell] the business.”

Seviroli Foods Inc., a manufacturer of pasta and sauces in Garden City, hopes to expand by purchasing like-minded companies. It bought D’Orazio Foods Inc. of New Jersey in February and may acquire others.

“We’re in a business that is static at best,” said Paul Vertullo, chief operating officer of family-owned Seviroli. “You have to do things to increase your market share, increase your volume . . . and some of that has to come through acquisition.”

He and others said in-depth information about the facilities, employees, workplace practices and markets of a potential acquisition is crucial. He said Seviroli and D’Orazio executives know each other; both companies were started in the 1960s and make similar products.

Seviroli, which said it is the world’s largest producer of frozen tortellini, now has 350 workers; about 50 came from D’Orazio.

Pursuing an acquisition can sometimes lead to the suitor’s being bought by a third party.

That’s what happened to Ferrara Bros. Building Materials, a Queens-based supplier of ready-mix concrete.

Vice president Joseph J. Ferrara said his family was trying to buy a competitor but lenders demanded financial guarantees from Ferrara’s father and uncle who started the business in 1969.

The men rejected the conditions but soon were approached by U.S. Concrete Inc., a public company based in Texas. In April 2015, U.S. Concrete purchased Ferrara Bros. for as much as $94 million, according to securities filings. U.S. Concrete also bought the small company that Ferrara Bros. had been interested in acquiring.

To Ferrara, being part of a larger company has meant “leverage” in winning contracts and working with vendors. It also regrettably led to layoffs, he said.

“We had to grow or shrink,” Ferrara said. “I wouldn’t do things differently.”


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