The Sweet Smell of Excess

It was a heady time for John Partridge. Until the fall of 1998, Partridge had been minding his own business, which happened to be a highly profitable, $2-million flower shop in Augusta, Ga. Then, suddenly, he was being wined and dined by a group of former Blockbuster executives who were champing at the bit to buy his company. Their plan was wildly ambitious: to acquire 1,000 of the best local and regional florists in the country's 100 largest markets and to create a recognizable brand of flower shops. It would be a "roll-up," in which one company takes the lead and buys many smaller ones to create an instantly large company that typically goes public. For Partridge, the pitch was very seductive.

Partridge, who was then 45, had worked hard for years to build his business into the success that it was, but he was well aware that florist shops generally don't sell for large multiples of earnings. His own long-term exit strategy from the business he'd devoted his life to was less than clear.

And so, in September 1998, Partridge and nine other florists found themselves at the Hyatt Regency Pier Sixty-Six in Fort Lauderdale. The florists had been flown to Florida for a two-day "founders' meeting," and from the beginning it was clear that no expense had been spared. Among the big suits were Steven R. Berrard, who had been CEO of both Blockbuster Entertainment Group and AutoNation; Gerald R. Geddis, who'd once been Blockbuster's chief operating officer and worldwide operations vice-president; and Albert J. Detz and Adam D. Phillips, who'd been, respectively, chief financial officer and chief administrative officer at Blockbuster. "You know, I wear custom-made suits, too," says Partridge in a good-old-boy drawl. "But somehow because of their success with Blockbuster, I was in awe of these people. I thought they had the Midas touch."

Berrard, Geddis, and their colleagues were dead serious about the opportunity that the florist-chain roll-up offered. They were planning to sink $10 million of their own money - along with a $20-million private placement underwritten by Allen & Co. - into the venture. Blockbuster had grown from a single store in 1985 to 3,700 stores by the time it sold to Viacom, in 1994, for $8.4 billion. Why couldn't the new chain - named Gerald Stevens after the two principal founders' first names - do the same? "This is going to take the floral industry to a whole new level," Eric Luoma, the owner of Cactus Flower Florists, in Scottsdale, Ariz., remembers thinking. He looked around the room at his peers, and among them were Partridge, a former president of FTD (the prestigious national referral network) who was incredibly well connected in the industry; Greg Royer, whose Lebanon, Pa., operation was known for great productivity; and Tom Boesen, of Des Moines, who knew customer service inside out. Luoma considered himself a marketing expert. "We were the cream of the crop," Luoma says. "It seemed like a slam dunk."

The two-day founders' meeting, typical of the excesses of many well-financed start-ups of the 1990s, was designed to capitalize on that kind of excitement. The sponsors kicked off the meeting with a video. The florists, most of whom had already signed the final sale documents, were positioned in a horseshoe around an enormous movie screen in a conference room. The videocassette player rolled, and a finely edited compilation of movie clips - from Casablanca, The Sound of Music, and other classics - filled the room with a warm glow, and in all of them people were giving one another flowers. At the very end, the audience watched Humphrey Bogart deliver his famous "this is the beginning of a beautiful friendship" line.

Everybody in the room that day believed that it was also the start of a very lucrative friendship. No one made specific promises, but in one meeting the florists were shown a chart demonstrating that early investment in Blockbuster would have resulted in what Partridge calls "jaw dropping" returns by the time the company sold to Viacom. "We figured we'd be rolling in dough," says Partridge. "My wife and I went to Bermuda right after that meeting." It was, they would learn, a premature celebration.

In the late 1990s, the floral industry seemed ripe for a breakthrough. And who better to take on the challenge of developing a national chain in the $15-billion industry than some of the key people responsible for Blockbuster's stunning success? As Gerald Stevens cofounder Geddis told the Miami Herald at the time, the floral industry was "almost identical to the video industry in the mid 1980s. It's large, mature, fragmented, and there are no national brands."

Geddis and his colleagues came with strong credentials - and they had a good story to sell. By combining the best and the brightest of the floral community with their own vast knowledge of operating multiple retail stores, they'd create a powerful national brand in an industry that had always been void of very big players. Not only would they offer the florists a healthy cash buyout, but they also would provide a shot at the public-market bonanza of the late '90s. (Under typical conditions, a florist can expect to sell for just 34% of annual sales plus inventory, according to The Business Reference Guide 2002.) The individual deals varied, depending on the size of the business and the negotiating skills of the florists, but the florists interviewed by Inc. say that the package they were offered exceeded what they had ever believed they could sell the business for on their own, thanks to the upside potential of the stock options that most received.

For many of the florists, the roll-up offered the fulfillment of desires that had always seemed unattainable. "It was almost as if someone dropped a golden egg in their lap," says Don Hotton, who sold his two San Francisco Bay Area shops to Gerald Stevens for approximately $325,000. But that wasn't the only selling point. "What [Gerald Stevens] offered me was the opportunity to run with guys from the upper echelon of the industry," Hotton says. Plus, adds Chris Rea,who sold Detroit area-based Thrifty Florist to Gerald Stevens, there were other consolidation plays in the marketplace, and independent florists, whose margins were already being squeezed, were getting nervous. "The feeling that most people had was that if you didn't do something, you'd be left behind," he says.

"It's very difficult to sell a flower shop," says Paul Goodman, editor of Floral Finance, an industry newsletter published by Teleflora. "Gerald Stevens was a train that came along once in a lifetime."