IGP: Independent Thinking
An interview with Jack HesseJH: As we buy more companies in the industry, you find every one of our companies not only supplies retail outlets with finished plants, but also supplies growers. And we think that will always be part of our business.
GT: You've been in the business of acquisitions for a long time now, with American Garden Products and now IGP. There's a growing group of "competitors" out there, each is doing something a little different, but all are buying nurseries and related businesses. For certain, it's a growing trend. From your viewpoint, how does consolidation fit into our industry?
JH: You consolidate because you can make the production of nursery plants more efficient by having longer production runs and single locations concentrating on a certain number of products. If we look at, for example, hollies, and look at the ideal growing conditions, those are East Coast-grown products. If we look at conifers, we can do conifers in the Northwest better than anybody in the United States. When you bring these two things together, you're looking to optimize climates to be the most efficient producer and grower of those products. When I say the most efficient, I don't mean because we take shortcuts; I mean because the climate dictates it.
But I also think this industry has got to be owned institutionally, with the right people providing the right management leadership and also in order to provide the needed capital to continue to produce quality products and expand the supply of those products to meet the demands of the market. The idea that many of the people who grow plants and want to expand can do it all by themselves without additional capital over time is not realistic. You have to decide whether you want to grow and improve your business.
GT: How do smaller, "Mom and Pop" operations fit into the picture?
JH: There will always be some small nurseries because some people love plants, they specialize in a very narrow band of plants, and maybe that particular line of plants isn't available through a larger supplier. They can survive all of this.
GT: Some of the companies you've purchased were owned by people who were tired of handling the business side of things, who wanted to get back to the basics of growing. Others wanted to retire or leave the industry. As owners decide whether they want to sell-out to someone like IGP, what other kinds of motivation do they have?
JH: Demand in the industry and with larger garden centers is rising at close to around five or six percent per year - this means investment in inventories, it means the ability to expand your production capabilities, it means mechanization, and it means investment in new facilities. And the dollars are not nominal. So when growers have access to capital, they have access to expanding at least at the growth rate of the industry and more than that. When you have an effective consolidation, you're able to better create this supply chain to the garden center. You're able to fund the growth of the production nursery and expansion of sales and service to the garden centers.
GT: What changes occur within a company when it's acquired by IGP?
JH: I would say that when we buy a company, we rely on the producer, whether it's Skagit Gardens or anyone else, for the expertise in starting and growing plants and basically for the production plan of what they're going to grow in the future. When we buy a company, however, we ask the company to take a look with us at the market.
The second thing we do is produce a multi-year financial projection that's generated from our distribution and production strategy and market demand, so we know what the profits each business throws off are going to be and what the capital requirements are. And we start to develop an approach to the market with the individual companies based on the market demand.
GT: You've said before that you're putting these pieces - the resources of each company - together so carefully that outsiders sometimes think you've done nothing to take advantage of the acquisitions. You've recently announced that Skagit Gardens will be the exclusive distributor of Thompson & Morgan-branded finished plants - a sure sign that this integration is beginning to fall into place. IGP is also organized into a series of working groups located outside the office, while the marketing and financial specialists are in Boston. How is IGP organized?
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