Mike Yarmou·May 5, 2021

How to Buy a $2m Dying Business Then Sell It for 5X

Mike Yarmou, a former Conagra snacking-division executive, was recruited by a Canadian family fund to co-invest personally and serve as CEO of a declining Italian bakery ingredient distribution company in Ontario and New York, acquired for a low-seven-figure price at roughly 2x earnings on ~$7m in revenue. The seller was a disengaged, near-retirement owner who hadn't raised prices in five-plus years, and the acquisition thesis was a classic operational turnaround. Post-close, however, revenue fell faster than expected as major customers quietly defected and small competitors slashed prices; Mike determined he could not win a price war with his higher-cost infrastructure and instead pivoted the entire business to frozen foods after conducting ~200 customer interviews that revealed frozen supply as the key pain point. He retrofitted the warehouse to industrial freezer space, converted the truck fleet to frozen-only, ran a grand-reopening campaign to pre-sell customers, and leveraged frozen-food suppliers who were frustrated by narrow SKU lists at Sysco and GFS. Revenue more than doubled, margins expanded significantly, major hospitality and grocery accounts were added, and the team completed tack-on acquisitions of smaller distributors for their books of business. About five years in, an inbound offer from a larger regional distributor resulted in an exit at 5x the original purchase price. Mike went on to found New Point Advisors, a distressed-PE advisory firm, and was creating educational content on distressed acquisition and turnaround at the time of recording.

Deal facts

purchase price: low seven figures (stated as 'low sevens')
multiple: ~2x earnings at acquisition; exited at 5x the acquisition price
revenue: ~$7m at acquisition; more than doubled post-pivot
financing structure: Family fund (Ontario/New York) + guest personal capital as co-investor/CEO; broker-intermediated deal
notes: Italian bakery distribution company, Ontario/New York cross-border. Guest recruited as CEO and required to invest personal capital. ~5-year hold. Tack-on acquisitions during hold period. Sold to larger regional distributor via inbound offer. '5x' refers to 5x the purchase price paid, not 5x EBITDA at exit. Title's '$2m' likely refers to SDE/earnings level, not revenue or purchase price.

Why this business

The family fund partners had identified distribution businesses as a tack-on to their existing operations and recruited Mike as CEO because of his Conagra food-industry background. The target was a 25-year-old Italian bakery distribution business with a checked-out, near-retirement owner who had not raised prices in five-plus years, had done no new customer acquisition, and was watching margins erode — creating obvious operational levers for an engaged new owner.

What's working

Pivoted from Italian bakery staple distribution to a frozen foods specialist model after ~200 post-acquisition customer interviews revealed frozen supply as the dominant pain point
Owned full-truck frozen capacity, enabling a broader, more unique SKU set than broadliners (Sysco, GFS) who only allocated a small truck partition to frozen
Positioned as 'I want to own your freezer' — a single dedicated frozen foods supplier vs. a generic broadliner — giving restaurants differentiated products competitors down the street couldn't match
Leveraged disenchanted frozen food suppliers who couldn't get products to market via narrow-SKU broadliners; negotiated favorable terms and minimized working capital outlay
Tack-on acquisitions of smaller distributors: absorbed their book of business and supplier relationships into existing warehouse/truck capacity with minimal incremental overhead
Grand-reopening campaign during the pivot: sent customers progress photos and updates on warehouse and truck retrofitting, pre-selling the new model before launch
Hitting earnings thresholds (~$500k, $1m, $2m) unlocked better cost of capital (CNI banking), improving reinvestment ability and making the business attractive to strategic acquirers
Customers including Hilton, Sheraton chains, and grocery stores were won as net-new accounts the prior owner had never pursued

What's hard

Revenue fell faster than projected immediately post-close: top-20% customers who verbally committed during diligence quietly defected once the new ownership took over
Small 'one-truck' competitors smelled vulnerability, slashed prices, and undercut aggressively — the company's higher cost-to-serve (infrastructure, refrigerated trucks, staff) made a price war unwinnable
Q1 results under new ownership looked terrible, creating a difficult early shareholder review
Discontinuing shelf-stable bakery lines during the pivot caused a revenue dip before frozen accounts ramped up
Retrofitting warehouse to industrial freezer space and converting trucks to frozen-only was a significant capital and operational undertaking
Labor challenge: staff working in freezers for two to three hours is a materially different proposition than ambient warehousing
No contracts exist in food distribution — all relationships are transactional, so customer retention assurances during diligence proved unreliable

Notable quotes

I'm not gonna play that game where I'm going down to their levels of a price point so I'm never gonna make any money. We need to pivot.

I want to own your freezer — you've got a produce supplier, you've got a meat supplier, now I want to be your frozen food supplier.

The goal was to buy it for two times earnings and sell it for five times... if we got it to the size where we thought we would, we thought the margin multiple would increase giving us that extra kicker.

You become the prettiest girl at the dance as soon as you start hitting these thresholds to certain bankers.