In January of 2022, Milwaukee-based frozen pizza manufacturer Palermo Villa Inc. announced that it had acquired a majority stake in Funky Fresh Spring Rolls, a Milwaukee-based business specializing in handcrafted spring rolls. Palermo’s chairman and chief executive officer Giacomo Fallucca, Palermo’s director of business development Jasper Fallucca and Funky Fresh Spring Rolls founder TrueMan McGee
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Jasper Fallucca[/caption]
At the M&A Forum, Jasper Fallucca explained the company’s approach on buying other businesses:
“Historically, it’s really been more pizza or pizza adjacent items allowing us to either scale in different regions or use some synergies to either grow distribution of a brand, work with manufacturing or be able to move into different categories within pizza. That was pre-COVID. During COVID people were staying home, eating habits changed significantly, spending habits changed significantly, so we started looking at companies coming up with some great concepts, especially in frozen that we can help scale. The brand is really what we look for, the essence of it. Something that has a strong story that people are attached to. We look at that and how we can leverage our internal assets in terms of development, sourcing, manufacturing, distribution, sales, marketing, all of the back of the house stuff and focus primarily with founder operators that can really build a business. Trueman gets to focus in this deal on all of the fun stuff and we get to focus on how do we sell this brand, how do we get this thing national. How do we develop this? I think in the future, what we’re looking for is brands that we can scale quickly. I think we’re gonna be looking more at frozen products, snack, hand held, single serve, items that the everyday consumer, if I can make someone’s life easier with a product that’s what I’m looking for. But also something that’s healthy.”
After discussions were sidetracked by COVID, the process for Palermo’s to acquire Funky Fresh took about a year.
“This is an epic story,” McGee said. “Two weeks before covid happened (in 2020), I was on my way to meet with Giacomo to further the conversations, and I got in a car accident. I had spring rolls with me. All of the spring rolls flew up in the air, got in my face. I was more upset about my spring rolls than my truck getting damaged. (After the pandemic began) I don’t know if we lost communication, but everyone was focused on what they had to do. We had to keep our restaurant going and figure things out.”
Their conversations resumed in January of 2021.
“We had a few conversations to catch up,” McGee said. “We had gotten into 19 stores at the time. They had an idea of how to structure the new company, work things out. One of the things that intrigued me about working with Giacomo and Jasper is they operate with such high integrity. It can get kind of messy if you have a friendship. Ultimately, they want the best deal for them I want the best deal for me.”
Giacomo and McGee didn’t communicate much during the negotiations.
“Because we did have that personal relationship, so I was talking more with Jasper,” McGee said. “There were times during the negotiations when I was like, I’m not sure where this is going.”
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TrueMan McGee[/caption]
Shark Tank reaches out
“The thing that solidified for me my decision to work with Palermo’s, Shark Tank contacted me in the middle of our negotiations and wanted me to be on the show,” McGee said. “At this time we had an LOI where you can’t negotiate (with another party) or whatever, and I’m like are you serious? Shark Tank, the biggest show for entrepreneurs on the planet wanted me to be on there. And I didn’t want to play both sides of the fence so I told (Palermo’s) that Shark Tank contacted me. They were willing to let me out of the LOI to negotiate with Shark Tank because they ultimately wanted what was best for me. For me, that was what sold me on them. That’s a lot of integrity to have. That was what made me want to seal the deal with Palermo’s.”
At the M&A Forum, Jasper Fallucca talked about the importance of taking time on an acquisition deal to make sure both sides understand all of the terms and conditions.
“There is a lot of paperwork that’s involved, there are a lot of terms,” he said. “There are so many terms to a deal. The operating agreement, how is each entity going to operate? What are your roles? What are mine? What are yours? How is it structured? And the thing we wanted to make sure was between TrueMan and us, was that we both knew exactly what was in all of these documents we’re signing. And I think one of the things a lot of times you hear is people sign something and they come back 5 years later and say, ‘Oh gosh that was an awful deal I can’t believe I signed that.’ Well, unfortunately you did sign it. So, we wanted to make sure with TrueMan, everything in there we agreed upon it, we talked about it, talked about the repercussions. What happens if this happens? What happens if that happens? Because you know the only way this partnership is going to be successful is if we’re both onboard, we both were really gung ho about where it’s going. So we really wanted to make sure that all of that was taken care of. And it took longer, but at the end of the day I’m really glad that we did it that way.”
Giacomo Fallucca talked about his largely hands-off role during the process:
“We have a large business and we have a lot of moving pieces and parts,” he said. “Jasper and True were working really well together. So if I’m going to entrust them to work out a deal, that’s exactly what I did. I only had to get involved in a few occasions. True and I knew each other before. So, we had a good friendship. I don’t know if it was intentional (that he stay away from the negotiations) but it was just how we operated. Jasper was running this process. That allowed us to focus on the business at Palermo’s while they focused on this acquisition.”
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Giacomo Fallucca[/caption]
Earlier, McGee considered buying a building to produce Funky Fresh spring rolls, but Giacomo Fallucca advised against it.
“When True and I first talked he mentioned about ‘a building I can buy,’ It was on state street, for a half a million dollars. We talked about manufacturing, and the number one concern is food safety, quality. Building a team around it. So when I looked at what it would take to buy the building and then remodel the building and then bring a staff in and operate, you know it didn’t make sense for the business. And so, we looked at it from a different angle and we would contract manufacture that product. And that’s what Jasper and True were successfully able to do. So, we avoided that capital investment but focused really more on the sales and marketing and growth of that brand.”
Keeping the founder involved, after acquiring their company:
“The way we look at these deals, we want to make sure that the founder or whoever is running the company at the time of acquisition, is still going to be involved post transaction,” Jasper Fallucca said. “Because they are the people that have the ideas. They’re the ones who know all of the ins and outs of the business. So, one of the things we really wanted to make sure was TrueMan is involved in everything going on. In order to make it successful you need everyone’s buy-in. And in order to have that buy in, one of the things you need to have in the operating agreement is, what is (everyone’s) role going to be? (The founder) is not just going to be the face of it, you’re gong to be involved in helping this get to the gold standard product. That’s a product we can go to a contract manufacturer with to mass produce and that was a main negotiating point, but also all of the marketing elements as well. So just kind of going down the list what do you want to do, what do we want to do, what are you best at, what are the things we don’t want to touch? I think so many times with large corporations, they mess things up. They have their spin on it. The smaller businesses, you don’t need all of that and that’s the thing we love about TrueMan, was we can be nimble. So, it was really making sure that we thought 5 years out, 10 years out, how do we want this business to operate and put that into writing very specifically.”
What did you consider a nonnegotiable issue for the deal?
McGee: “For me the biggest nonnegotiable was the actual product. We had fresh ingredients, all natural chicken. I didn’t want to dumb down the product just to make a buck. I didn’t want to sacrifice our integrity of the product or the brand. That’s something they were adamant that they wanted to continue to do. I didn’t want to put out an inferior product just to make some money.”
How to scale and maintain quality
Jasper Fallucca: “That’s one of the fortunate elements that we were able to bring, we have a full sourcing team, so are able to buy ingredients from all over the world that are just as good as the ingredients that you were putting in your rolls from the beginning. Since we have a network of probably 12 other contract manufacturers across the country it was easy to find someone who we believe in that can make the product to the standard that we want at a price we want. I don’t look at it as we ever had to say is it going to be less or better, we’ll be able to figure it out, it’s just going to take some time, let’s put our heads together. Food ingredients have come a long way in recent years and I think we’re able to source ingredients that are just as good if not better than some of the products you were having before.”
McGee: “95% of the ingredients of our manufactured product are the same ingredients as in our restaurant. That means a lot to me, being a food enthusiast and passionate about food. I want to see real food being put into our products. I think that’s a misconception people think it’s manufactured and things are just junk, made up, modified or whatever. I went to see the first spring roll come off the line and I’ve been there through all of the processes.”
What’s the key to maintaining the entrepreneurial spirit of founders when they company is acquired and they are still involved in the business?
Giacomo Fallucca: “With True, we looked at the long-term vision and goal of the company and looked at where do you want to go, and do we want to exit? So, we talked about that. And we built in incentives throughout the process, because True, he’s really a brand ambassador. He really brings a great culinary aspect to the business. And so, we just set milestone for the next one year, five years, and if we’re around I don’t know maybe 6 or 7 years from now who knows what it’s going to be. But we set those milestones and he's not going anywhere, we’re not going anywhere. We have a goal in mind and we’re going to work it until we reach that goal.”
McGee: “I didn’t look at this collaboration as a lottery ticket for me to just be like, ‘Alright we merged our companies and I can just relax on a beach.’ It’s nowhere near that. There’s a lot of work to be done. For me, being a hustler, being a true entrepreneur, I look at it as a challenge. All right, we’re at a new level. But with a new level new challenges come in. I want to accomplish things at this level as well. For me, it feels like starting over. It’s rejuvenated my passion. You work in a restaurant, it’s a grueling business. Low profit margins, a lot of hours, you’re away from your family. I did that to get to this point, but now I’m like at this level it’s like I’m a gamer I’m ready to compete and go further with this.”
What is the vision for the future of the Funky Fresh brand?
Jasper Fallucca: “Right now we’re in about 200 stores. That was a very intentional goal we wanted to get to. We wanted to test out the product, see how it’s going. A big metric in our industry is how many units per store per week is this product selling and we wanted to see how it’s going to do at the price point it’s at right now. Right away we know we have some changes we have to make. We want to make this as affordable as possible to the consumer. More affordable, more units per store per week, the better velocities we’re going to get and inevitably the more stores we can get into from there. Our next major milestone is really going to be getting an anchor tenant at a national retailer. Really where we want to play with this product is in the better for you natural category. But the cool thing about Funky Fresh is that it can be really sold anywhere. A lot of the stores we are in right now are not necessarily the better for you channel. And it’s doing very well. But aside from that, once we get into a national account, we also really look at the brand as not just spring rolls. It’s the name Funky Fresh, the essence of Funky Fresh. Where we can go with it from here? We’re actively working right now on different categories within the Funky Fresh name. which is one of the reasons why we loved it so much because we know it has a lot of legs. We know it can really scale quickly and we know there’s a lot of other levers we can push within the business of TrueMan’s IP of all of these great culinary builds he has in his mind. Bowls is one of the things we are looking at. So being able to create a better for you bowl for breakfast, or for lunch and it’s really being able to leverage all of your ideas to create a much bigger brand than just Funky Fresh spring rolls.”
What do you look for when evaluating a brand?
Jasper Fallucca: “TrueMan’s product is something that’s entirely different from what’s in the market. So, for us, being able to look at products that are not readily available or the types of flavors we’re going after are not readily available, for us that’s a win because we are able to bring something new to the marketplace. That’s really what I look for. “
Giacomo Fallucca: “I think it starts with relationships. As a company we’ve established relationships with our competitors, manufacturers that manufacture similar or adjacent type items as us. And it really starts with a phone call from us wanting to meet the owners. Let’s just talk. And sometimes they’re like, ‘What do you want?’ We’ve made some great friendships in our industry whether it’s in dough or pizza toppings or pizza or pizza alternatives, so I think it starts with that curiosity and it starts with building a friendship. What we’ll do many times is try to break down those barriers. ‘Hey, why don’t you come out? We’ll give you a tour of our facility. We’ll show you what we do. We don’t have any secrets.’ And that starts it. And then we have this friendship. And then from that all sorts of questions start to come up about whether its employees and how we engage and what we do, suppliers, or manufacturers or equipment, and we begin to establish a friendship in the industry. And that’s what we did with True and that’s what we do with a lot of the other companies that we are talking to right now.”
How does Palermo’s plan to leverage its connections to grow the Funky Fresh brand?
Jasper Fallucca: “I think we’ve leveraged our relationships. That’s what we’re doing. So, we were out in California about a month ago and we met with our large broker network and had a chance to bring True and True was in those meetings. You were nervous at first. They were blown away with you and your story. So it’s leveraging the relationships that we have, whether it’s in supply chain or whether it’s in the sales side or the broker side. And that gave us a really good confirmation about True and the brand and where it can go. We’re not really using the Palermo name. They know that we’re a pizza company but we share a lot of the same relationships whether it’s in trucking or the frozen food space or the buyer or the brokers.”
How do you vet which stores you want to work with and how they may impact the product image?
Jasper Fallucca: “I think in any grocery store I believe there is a space for this product. Now, that’s not the case for some of our products alone. There’s a lot of arguments per se that go around. Should this product be in this store, because it’s not selling or maybe it’s not the right fit. So, we look at a lot of data to see what is the best fit for each brand. And that’s one of the things internally that we spend a lot of time on. Now with Funky, right now since it’s just in its infancy, there’s not a whole lot of data to play with. It’s really this whole test we’re talking about. Kind of testing it out in the market and eventually having more data points we can pick and choose from there. Right now we really want to get consumer feedback. And then from there we’ll really be able to leverage all of the feedback and make the best possible product so when we are ready to go national with it we can put our best foot forward.”
What’s the long-term vision for Funky Fresh? Is there an exit plan?
Giacomo Fallucca: “We want to grow it and sell it. I don’t think we have a number in mind, but I think we are going to scale it to a certain point.”
Is Palermo’s open for selling the business, or are you more on the buyer side?
Giacomo Fallucca: “Our state of mind is we’re buyers not sellers. There are a lot of investment bankers in this room. The big joke at food shows is that we went to an investor conference and in the middle a food show broke out. You see all of the bankers and attorneys walking down the aisles. The thing with us is that if we look at the deals that we look at we have probably 20 or 25 companies or brands that we talk to that we know we can scale. Were just in Italy – we’re looking at some technology there, so it’s all about growth, right? If we were to exit in how many years, you’re not just going to retire on some beach, your mind is going. We think about products and products that you can get into and scale, whether it’s on the regional side, the food side, or the beverage side, I think that’s the energy that we have. Always looking at growth and how can we grow with different brands and products.”
Final thoughts
McGee: “(Giacomo Fallucca) gave me this advice. There’s going to be some times when you feel burnt out and fatigued during negotiations. He said that early on. I’m like, ‘What, it’s exciting, right?’ And so we started negotiations around January. In my mind, not knowing, I thought OK, it will be a couple of months or whatever. By December, I was ready to quit. I said, you know what? Forget this. I’m just going to go out there and roll spring rolls for the rest of my life. We had a conversation at Stone Creek Coffee, and (he said) ‘Hey, you just have to get through the tough parts, there’s going to be tough times or whatever. But just stay the fight, stay the course.’ And that’s just good advice in life in general. We might have times that we felt like giving up. You might be so close, whatever. Just stay the course you know one foot after another.”
Jasper Fallucca: “Having an advisor you can really rely on is critical. There’s a lot of parts of a transaction, you might not know what’s going to happen. What this means, or what any of these terms mean. You need to have an advisor who has been through it. Each deal is different, but it’s best to have someone who’s been there and been through this to help you along the way. Who you choose is really important on the legal side, but also your banking partner as well. Making sure that they are there with you and making sure they know what you want to get out of it. You need to know going in what you want. Their goal is to sell it, but you need to know what your goal is too.”
Giacomo Fallucca: “But going through a transaction you don’t want to deflect too much to your attorneys or advisors. You’ve got to know your deal. So that’s where you spend a lot of time going paragraph through paragraph so you know what you’re signing and you know what it is. Other advisors may have your best interest at heart but they may not know what you want exactly so where we made the most progress was when the three of us sat down and talked. We just said, ‘Here what do we want?’ It was so simple. Because we were aligned from the start about what we want and the general terms of the deal. It was pretty easy. Know the documents you are signing, but know your business also. Don’t deflect to an advisor.”
