Costa Farms Will Maintain Operations “the Costa Way” With Acquisition, Says CEO Joche Smith
Costa Farms has entered an agreement with the Markel Corporation in which Markel will acquire a majority interest in Costa Farms and its related operating companies, excluding the Costa family’s separate venture into the cannabis industry. The deal, expected to close in the third quarter of 2017, is a unique partnership in which Costa Farms will maintain its current leadership and operate with the flexibility of the partnership and additional “permanent capital” provided by Markel, with little involvement by the investment company.
Markel Corporation is a diverse financial holding company that serves a variety of niche markets. While the company’s principal business markets and underwrites specialty insurance products, its subsidiary, Markel Ventures, makes long-term investments in high-quality companies that operate outside the insurance marketplace. It is currently partnered with 16 different companies in a variety of disciplines. With its background in insurance, the corporation has plenty of cash, and investing in companies with a higher rate of return is more profitable than accumulating interest in the bank.
Costa Farms CEO Joche Smith explains that the partnership with Markel was attractive to Costa Farms because of the flexibility and autonomy it offers to its partner businesses, as well as the long-term investment of capital. Unlike private equity firms, which generally invest for a period of a few years, get involved in the business, and then sell, Markel has a completely different model, Smith says.
“We talked to some of the CEOs of the Markel Ventures businesses, and the feedback was phenomenal and consistent. They told us, ‘We run the business the way we run the business – we’re working with great partners who are just not involved in the operation,’” he says. “Markel has never sold a company, so the fact that they’re what they call a ‘permanent capital solution’ is what made it a very attractive partner for us, and we can count on that partnership being there well past when I’m gone.”
But that’s not a worry anytime soon, he says.
“We’ve been in business for more than 50 years, and the family is going to continue to lead the business. That’s what I think everybody needs to know,” Smith says. “I’m 50 years old, I like what I do, I love my team, and we’re going to keep doing what we’re doing, and that’s not going to change.”
Hands-Off Partnership Ideal for Growth
So what was the need for Costa Farms to seek outside investors, and why now? Smith says there were a couple of reasons. One is that the third-generation company is starting to see the fourth generation getting involved, and with an expanding shareholder group, things could get complicated.
“This is a way that we thought we’d be able to protect the company and the whole team here for decades,” Smith says.
The other main reason is to provide the operation with capital to continue to grow. Costa Farms has been through a period of rapid expansion, especially over the last five years. In March 2017, Costa Farms announced its acquisition of Delray Plants, which provided the grower a unique opportunity to expand its indoor houseplant lines and retail footprint, as well as develop the company’s e-commerce presence, among other benefits. The operation purchased Layman Wholesale Nurseries in Trenton, SC, in 2012, which allowed Costa to enter the perennials business. In spring 2014, it acquired the business, assets, and brands of Hermann Engelmann Greenhouses, Inc. of Apopka, FL, most notably known for the Exotic Angel brand of small houseplants. Costa Farms also purchased the facilities of an orchid and bromeliad producer in Homestead, FL, in 2015, moving its Desert Gems cacti and succulent production to those greenhouses.
“We want to have a more deliberate acquisition strategy going forward, and Markel is an ideal partner, and gives us even more flexibility,” Smith says.
Future acquisitions will likely be focused more on other growing facilities, and less on vertical integration, Smith predicts. The Costa Farms suite of businesses includes its own trucking company, PM Transport; Total Growth Solutions, an entity that produces high-quality young plants for other finished growers; a retail merchandising arm, Gardenvision; Costa Far East, a global sourcing operation for its own inputs; and Global Grower Resources, a company that helps other growers source production materials globally.
“We have done some vertical integration in the past, and we’ll continue to do some of that, but the primary focus here is still other growing facilities in different parts of the country, with similar product lines – indoor plants, annuals, perennials, and things like that,” he says.
Costa Farms Offers Attractive Portfolio for Investment, Markel Says
When it comes to Markel’s interest in horticulture, it was probably more about the company and team than the space specifically, Smith says. But the Costa Farms track record speaks for itself.
Ranked number 2 among Greenhouse Grower‘s Top 100 Growers in 2017, Costa Farms’ listed operating area for 2017 includes 18,787,416 environmentally controlled square feet, 1,241 acres of shade greenhouses, and 990 acres of field production. Founded in 1961 by Jose Costa, Costa Farms is a third-generation, family-owned business that globally stretches more than 4,000 acres and employs nearly 5,000 people. Along with thriving indoor, bedding plant, and perennials divisions, Costa Farms operates merchandising and young-plant production divisions as part of its infrastructure, with operations domestically in South and Central Florida, North Carolina and South Carolina, and abroad in the Dominican Republic and the Far East.
Through its businesses, Costa Farms generates about $500 million in revenue and sells approximately 150 million ornamental plants annually, in about 1,500 varieties, to retailers including Lowe’s, The Home Depot, Ikea, Walmart, and wholesale clubs, according to a July 27 article attributing those numbers to Smith in the Miami Herald.
Costa Farms was named the International Grower of the Year in 2016 at the International Association of Horticultural Producers awards gala at IPM Essen in Germany. The Florida-based grower was chosen from a group that included eight other international companies.
“The Costa family and their team have spent generations building a company that beautifies people’s lives and homes with millions of plants and garden flowers each year,” says Tom Gayner, Co-CEO of Markel Corporation. “We love what they do and the way they go about doing it, and when they approached us looking for a partner to support the continued growth of this incredible company for future generations, we couldn’t have been more excited.”