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Lincolnshire Management Harvests Growth from Home Improvement Boom

Home improvement retailers and the companies that supply them have been on an unexpected hot streak this year. Bars and restaurants were shut down, movie theaters may be banned from operating, but the parking lot is full at the home improvement center.

Sprucing up the back yard has acquired new relevance to many Americans. For some, it offers a few hours of precious solitude in a suddenly crowded house. For others, they have the time and the incentives (hey, you’re there 24-7 now!) to complete those gardening projects.

While leading companies such as Lowe’s, Home Depot, and SiteOne Landscape Supply have announced strong sales numbers in recent quarters, the entire home improvement industry and supply chain has benefited from this trend. Industry consolidation has picked up again as well: SiteOne announced a pair of deals in late August (Modern Builders Supply, Alliance Stone) as the mergers and acquisitions market rebounded from the pandemic.

The rising tide lifts all boats, including many middle market companies that support the supply chains of home improvement retailers and manufacturers. One of these is Nursery Supplies, Inc., a portfolio company of Lincolnshire Management. They make gardening supplies, more specifically the pots used by commercial growers to bring their plants to market. You’ve likely seen their product at your local home and garden center, holding a lovely fresh plant that ended up in your garden. We were able to catch up with their CEO, Brad Andersen, to get some inside perspective on how the home improvement trend gained momentum during the pandemic.

March: A Very Uncertain Start

“We started the year extremely strong. January and February were both great months and March delivered strong results as well,” Brad commented, “Reality caught up with the market in the second week of March, as officials started pushing for closures and social distancing.”

Since it takes a few weeks for a plant to move from grower to home center, most growers and manufacturers must forecast retail activity several months in the future to set production plans. As pandemic-related shutdowns took hold, that forecast quickly became very murky.

When business gets murky, smart managers take action to preserve their cash reserves. The easiest way to do this is bump your orders out, stretching out your inventory until you’re more comfortable with future demand. That happened at Nursery Supplies: a number of customers opted to defer portions of their spring orders until consumer trends became clear.

“As it turned out, that caution was unwarranted.” Brad continued, “Consumers kept buying, especially in May and June.” Brad continued, “Consumers kept buying. Many of our growers have referred to 2020 as their best-ever spring and have told us they expect to see strong sales continuing through the summer into this fall.”

Nursery Supplies is already seeing this lift in their financial results. 2020 sales are predicted to grow by 7%, a strong performance for a company given the constraints of the customer base (you need to grow a plant in order to pot / sell it). 2021 offers an opportunity for further upside.

Building A Resilient Supply Chain

Getting the customer’s order is only the first step in the process. After that you have to deliver, regardless of any upstream disruptions in the supply chain or other operating challenges. Managing complicated supply chains proved problematic for many manufacturers in 2020.

The essence of the issue is that each concentrated group of workers is a potential point of failure if a virus outbreak occurs at that site. In an economy fed by outsourcing, specialization, and global trade there are many potential points of failure in a typical product’s path to market. This risk accelerates when those hand-offs cross borders, since you’re now exposed to government shutdowns at both ends of your supply chain. By simplifying and consolidating operations into multifunctional facilities, Nursery Supplies has been able to reduce the risk of disruption.

“Our vertical integration emerged as a source of competitive advantage in this crisis. We make our products from common sources of recycled plastic. Things like Tide detergent bottles, milk bottles, and car bumpers. Our recycling and plastics forming operations are fully integrated, so we can feed our plants from a large variety of domestic recycling partners.”

This is an area where careful planning by the Nursery Supplies and Lincolnshire Management teams paid dividends. Andersen has brought deep expertise in business continuity planning from past roles at Procter & Gamble. The Nursery Supplies supply chain is hardened against disruptions, using the simplicity of their vertically integrated operating model to reduce exposure to drama. With easy access to raw materials that are processed in-house (ground up, flaked, and turned into pellets), they were well positioned to keep serving their customers through the storm.

Lincolnshire Management Supports Their Portfolio Companies

This success story started long before the events of 2020. Lincolnshire Management is an experienced investor in middle market businesses, completing over 90 acquisitions in the past thirty years. They’ve learned how to harden their operations against a downturn.

“Surprises are a fact of life in our business. Our approach is designed to equip our portfolio companies with the resources to weather the storm and win,” commented Michael Lyons, Lincolnshire Management’s president, “We pick the right deals, finance them prudently, and invest the time to learn the business. That positions you to create value in a downturn.”

Lincolnshire moved quickly in March, taking steps to ensure that their portfolio companies had adequate liquidity to handle the storm. Strong finances give you room to work. Their team of in-house operating professionals reached out to ensure the portfolio companies had the necessary support and resources. Recruited from the ranks of former C-level leaders, their operating executives serve as a sounding board and source of perspective for portfolio company teams.

This calm and steady approach has brought Lincolnshire success, enabling their operating teams to pursue new opportunities as markets shifted. In the case of Nursery Supplies, they already harvested a nice crop of sales growth this year. And the outlook appears to be sunny.