Gestalt Capital Partners with CDS Foods

Montreal, QC – September 27, 2024 – Gestalt Capital is pleased to announce the acquisition of CDS Foods Inc., a leading importer of a variety of fresh produce, specializing in garlic, ginger and exotics. 

Headquartered in Montreal, this strategic acquisition marks Gestalt Capital's expansion into the fresh produce distribution sector, building on its notable investment in Five Guys and further diversifying its portfolio in the food service industry.

Founded in 2000, CDS Foods has earned a reputation for delivering premium-quality fresh produce to Canadians. With a firm commitment to excellence, the company rigorously manages its entire supply chain, ensuring the highest standards from farm to table. Over the past 24 years, CDS Foods has become the nation’s premier supplier of garlic, ginger, and tropical fruits, serving major retail chains, wholesalers, food service providers, and manufacturers across Canada.

Gestalt Capital is eager to support CDS Foods in its next phase of growth. "Together with Gestalt Capital, we will continue to provide our customers with the finest garlic, ginger, and tropical produce available. We are excited to join forces and expand our footprint across North America," said CDS Founder, Cesare Della Santina, who will actively remain with the company and focus on further business development.

John Della Santina, who will continue in his senior management role, added: "When we were approached by Gestalt, their partnership model and long-term vision for the industry resonated with us. We look forward to maintaining our high standards and strong customer relationships while benefiting from Gestalt’s resources and expertise."

In addition, Jonathan Bega and Ken Shi of Gestalt Capital will join the Board of CDS Foods, further strengthening the company’s leadership team.

This acquisition positions CDS Foods for continued success, preserving its legacy of quality and commitment while unlocking new opportunities for growth across North America.

Jigsaw, Clear North, and Gestalt Lead Roll Up with First Acquisition of 18 Five Guys Burgers & Fries Restaurants

Toronto, ON – July 15, 2024 – Jigsaw Capital, Clear North Capital, and Gestalt Capital, through their holding company North Star Dining Group of Companies (“North Star Dining”), are pleased to announce the acquisition of their first 18 Five Guys Burgers & Fries restaurants primarily in Minnesota. These locations, covering the Twin Cities of Minneapolis and St. Paul, mark a significant entry for the three investment firms into the fast-casual dining sector.

Five Guys Burgers & Fries is one of the leading fast-casual burger restaurants in North America and around the world. Since its inception, Five Guys has adhered to its core values, serving high-quality meals with hand-formed burgers cooked to perfection on the grill and fresh-cut fries cooked in pure peanut oil. Together, we will focus on delivering outstanding service, quality food, and a memorable dining experience for our valued customers.

This acquisition is the first of many in a roll-up strategy to consolidate the fragmented Five Guys franchisee market by acquiring small and mid-sized operators across North America.

The acquisition aligns with the North Star Dining’s shared vision of investing in high-quality, scalable businesses with strong growth potential and holding them for the long term. By leveraging their collective expertise and resources, North Star Dining aims to foster growth, operational excellence, and long-term success, with plans to acquire or build 150-200 Five Guys restaurants across North America.

Leading this roll-up and operational team are three Five Guys veterans and superstars:

Darven Erickson, as Chief Executive Officer (“CEO”): With over 12 years of experience building a company from two Five Guys restaurants to over 70, as CEO of the largest franchisee, at the time. He has worked closely with the Five Guys Franchisor as an elected member and ultimately elected the president of the Five Guys Franchise Advisory Committee.

Ryan Dussault, as Chief Operating Officer (“COO”): Ryan built and operated these 18 stores in Minnesota for the past 15 years. His place on the team ensures continuity and operational excellence. His current presidency of the Five Guys Franchise Advisory Committee also solidifies our stature within the Five Guys franchisee community.

Aaron Meyer, as Chief Financial Officer (“CFO”): Aaron brings 12 years of hands-on experience as CFO of the largest Five Guys franchisee, which he previously managed alongside Darven Erickson. In addition to this, he has 12 years of executive financial leadership roles. His extensive and direct experience in this role ensures he has the knowledge and ability to drive profitability and operational efficiency for North Star Dining.

Jigsaw Capital, Clear North Capital, and Gestalt Capital have combined their resources and experience to support this endeavor and provide North Star Dining with the financial resources and business/M&A acumen needed to execute this exciting plan. With collectively over 75 years of private equity and public investing experience, combined with our all-star senior leadership team, we are poised to build the largest and most profitable Five Guys franchise operation in North America.

The 18 Minnesota Five Guys stores were acquired from B & B of Minnesota, LLC having been built and operated by Scott Lesser and Ryan Dussault.

The Gestalt Vision: A Third Way for Succession

In the summer of 2021, I was sitting on a patio getting a drink with a mentor of mine. It was a sunny day during the height of the COVID crisis, and we were talking. At the time, I was doing some work with a search fund, and he asked me about what the process was like. He had been thinking about selling his manufacturing business, but felt a serious sense of trepidation. The business had been in his family for three generations - his grandfather had started it with a partner all the way back in the 1920s. He told me about how, when he was a small child, his father would take him into the factory often, with the employees there playing equal parts as teacher and babysitter. His first job was cleaning parts on the assembly line, and he’d do it every day during the summer holidays as a high school student (he really wanted to earn enough money to buy a car, and his family wanted to make sure he worked for it). He graduated college and learned the ropes in various roles until, in his early 30s, his father handed him the keys and had him buy into the business with a loan. 

To him, the business was more than just a way to earn a living, to generate cash flow, or to make a fortune by selling. It was something quasi-spiritual - a place that he had built and shaped which had also built and shaped him. He knew the story behind every scrape on the office table and the backgrounds of every person working for him. He regaled me with stories of the good times and the bad. Of times when they grew and times where he felt like they were a moment away from certain death. 

His children, he glumly said, weren’t interested in running the business. One had gone to become an engineer and lived in the USA. The other, running HR at a larger company in Vancouver. He was happy they were living their own lives, but looking at the business he had built, he wished that his children could have been the natural succession plan - they had made it clear they weren’t interested. The legacy that mattered to him was not as relevant to them, and while he understood it, there was a clear sense of sadness there.

As we got a few more drinks in, he raved about the management team that he adored. He credited his GM, his plant manager, his head of HR, and his line supervisors as the driving force behind why the business had grown over the last five years, as he had slowly begun to step aside. He was excited that his GM could become the next CEO and believed that he would do an incredible job. The management team were extremely loyal, smart, hardworking, and important - both to the business and to him. It was very clear that, in his mind, he had the legacy planned out. That even if it wasn’t going to his family, he was able to share the company with many of the people who truly mattered to him.

Due to this, while he cared about the value of his business, it wasn’t the only thing he worried about. He knew that private equity had a reputation for ruthlessness when it came to post-acquisition growth. He’d heard the horror stories - management replaced, culture burnt down, legacy wiped, all to facilitate another sale within a five year timeframe. The prospect of that happening to his business frightened him. He cared deeply for his employees - many of them had been with him for years, if not decades. His GM had started on the floor at 18, went back to school in his early 20s while still working, and now, in his late 30s, was the right hand man. His plant manager had joined him in 1997 and helped him through the booms and busts that followed. The two were like family to him. 

But he was getting older. He was in his late 50s when we spoke, and had experienced a few health scares. He felt stuck. On the one hand, he could sell his business tomorrow and fund his retirement (and, quite frankly, his grandchildren’s as well). He had been approached by a few M&A brokers, as well as some larger private equity funds. But he worried that he’d be “selling out” his people, leaving them up a creek without a paddle. He was also concerned about the risk to his business’ reputation and legacy. He told me that he had a recurring nightmare where he told his people that he was abandoning them. 

To him, it felt like an impossible choice. Reap the benefits of what he’d built at the cost of some of the most important people in his life, or protect his people but forgo a proper payday after decades.

Years later, when my partner, Ken, and I started Gestalt Capital, this conversation ran deeply in my mind. It had planted seeds that would take a few years to sprout, but as Ken and I discussed what we wanted to build in Gestalt, we realized that we had both spotted the same dilemma  that many Canadian business owners face. When we talked it through, we decided that we wanted Gestalt to offer a different path for business owners like my mentor. 

We realized there were two widely available succession strategies that business owners in Canada could currently take: 

1. The First Way: Family succession, whereby an owner passed the business down to a child or children. Something that had seemingly become rarer and rarer.

2. The Second Way: Private equity succession, whereby an owner sold the entirety of his ownership stake to a PE group, leaving behind the people and relying on a completely new group to manage the legacy (with short term incentives driving PE decisions). 

Neither of these options seemed great for people like my mentor or for the many business owners who have spent their life building something they are proud of. 

At Gestalt, we wanted to create a Third Way. 

From Technology to a Third Way

Both Ken and my backgrounds are fairly unique for this industry - neither of us has a background in investment banking or high finance. Ken is an incredibly successful venture capitalist, and I have operated and invested in technology businesses for the majority of my career. It was this unique perspective on investing and partnering that drove what we wanted to build at Gestalt.

To understand that, let’s talk about venture capital and tech investing quickly. I once had a mentor, a veteran in the venture industry, who referred to venture investing as “cowboy ****.” I always appreciated that, because it often felt more true than not. After all - imagine trying to invest in a business based on the belief that the people pitching you can take on the monoliths in whatever industry they are targeting. Often, these companies were pre-revenue. Sometimes, they didn’t even have a real product in the market yet. You want financials? You’re joking. Key performance indicators? Nope. Long term client relationships or brand? The business is a year old.  

So what did you invest in? What could you actually be certain about as a venture investor? 

The founders and their team. 

Fundamentally, venture investing was about backing the right people. You could look at some trends in the market, you could hear an exciting vision for the future, but the world changed, the market evolved, and the future is rarely truly predictable from the present. What you could speak to, however, was whether you believed this was a team that could execute at a high level. Whether this was a team that was resilient enough to roll with the inevitable punches. Whether this was a team that you could trust when things were going well and when things were not. And whether they were reliable, honest, and hard-working. 

We had no interest in coming in and trying to run the business (to me, it’s the height of hubris to think I can take over a business from an operator who has been at it for decades). We certainly didn’t want to replace the people that made the business functional. Our goal, as investors, was to back and enable these sorts of teams - to help them build ever better businesses. 

Turning back to the formation of Gestalt Capital, we realized that we were looking to do something very similar to our venture capital days. While we were interested in more traditional types of businesses - think services, manufacturing, distribution, etc. - and much less so in technology, we were looking to apply the same mentality we used in tech investing to the Canadian middle market. That is, we wanted to enable great teams. 

This was the beginning of how we defined the Third Way approach that we take.

Doing Things Differently

So, let’s talk about empowering and trusting great people. At the core of our philosophy, it permeates everything we do. If you were looking to enable a management team (or owner) in a business, how would you do it? 

You probably wouldn’t acquire on Monday and demand they trim costs 20% by the end of the quarter. You probably wouldn’t tell them that you intended to sell the business again within 5-7 years, and that you needed 20%+ annual EBITDA growth to do it. If I had to guess, I’d argue that you wouldn’t bring in a new CEO to run the business, knowing almost nothing about the culture, employees, clients, suppliers or environment. Or that you’d force acquisitions of only tangentially related companies to make sure EBITDA kept going up, no matter what. 

Yet, everything described is exactly the traditional private equity playbook. It’s not that they’re malicious, it’s simply that they are incentivized to sell their acquired businesses within 5-7 years. They are aligned around maximizing one thing: short-term shareholder value. This is contrary to how many owners (and us) think about their businesses - long-term, with a focus on other stakeholders (e.g., employees) alongside the shareholders. 

As Gestalt was coming together, we realized that in order to be good backers of great Canadian businesses, we needed to be long-term owners. We couldn’t focus on just shareholder return and still hope to empower strong management. We couldn’t be temporary custodians, holding for a few years before selling to the next group, and stay aligned with the long-term outcomes of the business. We couldn’t sacrifice legacy on the altar of short-term results. 

We had to be different so that owners we admired would want to sell to us and work with us.

Defining the Third Way 

As discussed above, we think of the First Way as family succession, and the Second Way as selling to PE and walking away. But let’s take a moment to define the Third Way that Gestalt offers to business owners. At its core, it means three things to us: 

1. We enable management teams: when we buy great businesses, we are not looking to replace the team, but to enable it.

2. We are long-term owners: when we buy great businesses, we are looking to own them forever. 

3. We protect the legacy of the business: when we buy great businesses, we want the owners to maintain skin in the game. 

Let’s discuss each one briefly.

We enable management teams

As noted above, we invest when we find a great business with great people managing it. We like to work closely with the business owner to ensure that the next generation of management is able to continue to grow the business. The flipside is that we don’t usually look too closely at businesses where there is no solid management team to take over post-investment. 

To enable a management team, we stress the importance of long-term thinking and planning. It allows for both a consistent strategy and a stable environment for the employees, customers, and overall brand. Management and other employees must feel secure that things won’t change on a whim, and we ensure to keep that stability. 

We are long-term owners

This long-term thinking and planning approach only works because we are long-term owners. We are very patient capital. When we acquire companies, we are acquiring for the long haul. We do not have a 5-7 year mandate to sell the business we acquired for more to generate returns so that we can raise the next fund and do it again. We are buying to hold forever. 

Because of this, we don’t think in terms of quarters or years, but decades. Our goal is that the businesses we acquire will still be market leaders in 30 years. We will never make short term decisions that generate long-term harm, and are incentivized heavily not to. 

We protect the legacy of the business

The result of a long-term ownership approach that enables management is that we end up being very protective of the business’ legacy. After all, if we are buying a great business and looking to enable management, we certainly don’t want to destroy what made it special in the first place.

Part of this is that we very much prefer situations where the people responsible for the legacy stay somewhat involved, engaged, and immersed in their business. As such, we generally prefer owners who want to maintain a piece of the business post-transaction. What that means differs by company and by owner, but it could be anything from staying on with a substantial chunk of equity to manage the day-to-day operations of the business, to transitioning into a primarily strategic role, taking a board seat, and helping facilitate an ownership stake for their management team. Fundamentally, we are looking for partners who truly believe in the Third Way approach and care about protecting their business’ legacy. 

Let’s Talk

To close off, I think I’ll just reiterate that we love to talk to owners who are looking for a Third Way. If you are the kind of owner who is reading this and nodding your head in agreement, we are always happy to chat. Maybe there’s a deal to be made, maybe there isn’t, but we never say no to an introductory conversation. 

Alongside that, we are very open to conversations with management teams looking for help with a management buyout, or to younger operators who have a small business but are looking for support in acquiring a larger competitor and running it.