| Fam­ily tree

Jonathan saper­stein be­gan his ef­forts to pro­fes­sion­al­ize and dom­i­nate the nurs­ery in­dus­try with a hos­tile takeover of a grower—from his dad.

Forbes - - CONTENTS - By amy feld­man

Jonathan Saper­stein be­gan his ef­forts to pro­fes­sion­al­ize and dom­i­nate the nurs­ery in­dus­try with a hos­tile takeover of a grower—from his dad.

In the sum­mer of 2014, Jonathan Saper­stein, then a 27-year-old ex­ec­u­tive at and mi­nor­ity share­holder in Tree-Town USA, a dec­o­ra­tive tree grower, was wor­ried. “We were up against the clock be­cause of the cash po­si­tion,” he says. The com­pany’s founder—his fa­ther, David Saper­stein, who had vaulted onto The Forbes 400 af­ter he sold his pre­vi­ous com­pany, Metro Net­works, for $900 mil­lion—seemed dis­en­gaged. David, who was of­ten trav­el­ing over­seas, wasn’t in­vest­ing in the com­pany, which had around $30 mil­lion in rev­enue; in­stead he was try­ing to grow it fast and cheap and then take it pub­lic. When Jonathan pro­posed a long-term strate­gic plan, David ig­nored it. When Jonathan of­fered to buy the com­pany—if his fa­ther wouldn’t man­age it right, he would—David re­sponded with what Jonathan calls “an ou­tra­geous num­ber” and the dec­la­ra­tion that it was not for sale.

Walk­ing away would have been the easy— and, ar­guably, the smart—move. What rich kid in his right mind wants to get into a fight with his cen­timil­lion­aire dad over con­trol of a small com­pany in a zero-glam­our busi­ness? In this case, though, the rich kid, now an alum­nus of Forbes’ 30 Un­der 30, turned out to be ev­ery bit the au­da­cious, shrewd and de­ter­mined en­tre­pre­neur his old man had been. And he de­cided to stand up to his dad.

In Oc­to­ber 2014, Jonathan, with the help of

sis­ters, Ste­fanie and Alexis, filed pa­pers to force the com­pany into in­vol­un­tary bank­ruptcy. They could do that be­cause Tree­Town’s par­ent com­pany, Seven S Cap­i­tal, con­trolled by their fa­ther, owed $21 mil­lion to three trusts in their names. David never saw it com­ing. The evening of the day the pa­pers were filed, he called Jonathan and started dis­cussing the terms of his sur­ren­der. They quickly reached an agree­ment. Jonathan’s hold­ing com­pany ac­quired Tree­Town’s as­sets, and he and his sis­ters sold their stakes in Seven S to their fa­ther. The pur­chase price, in­clud­ing as­sump­tion of debts, was around $50 mil­lion. At a com­pa­ny­wide meet­ing called to an­nounce the new own­er­ship, a Tree­Town ex­ec­u­tive brought Kool-Aid and cups and de­clared, “We’re ready to drink the Kool-Aid!” Of his fa­ther’s ten­ure, Jonathan says only, “We un­der­es­ti­mated the com­plex­ity, and when I say ‘we,’ I mean we as a fam­ily.” David, now 76, de­clined to be in­ter­viewed.

Since then, with savvy ac­qui­si­tions and techen­abled op­er­a­tions, Tree­Town has leapfrogged past com­peti­tors to be­come the coun­try’s largest tree pro­ducer and one of its big­gest nurs­eries. It em­ploys al­most 1,600 peo­ple and grows 4 mil­lion trees and 18 mil­lion shrubs and peren­ni­als on 16 farms in Texas, Florida and Cal­i­for­nia. Clients in­clude land­scap­ers and big re­tail­ers like Home De­pot. Rev­enue is ex­pected to sur­pass $120 mil­lion in 2018, with op­er­at­ing prof­its around 15%, above those of most com­peti­tors. While a few pri­vate-eq­uity-fi­nanced star­tups have tried with­out much suc­cess to shake up the nurs­ery busi­ness, the roughly $18 bil­lion in­dus­try re­mains pop­u­lated largely by un­der­funded mom-and­pop nurs­eries. Saper­stein is try­ing to break that mold and build a na­tional gi­ant. He and his sis­ters, who have no op­er­at­ing role in the busi­ness, own equal stakes with no out­side in­vestors. Jonathan says that while his re­la­tion­ship with his fa­ther sur­vived the takeover, they don’t talk about the busi­ness.

When David founded Tree­Town in 2000, Jonathan, his son with his sec­ond wife, Suzanne, was grow­ing up mostly in Los An­ge­les, where his par­ents were build­ing an epic white ele­phant, a 12-bedroom château called Fleur de Lys. (Suzanne and David di­vorced in 2007. The house sat on the mar­ket for years be­fore sell­ing in 2014.) Jonathan, who wears farmer jeans and car­ries his cell­phone in a pouch on his belt, pre­ferred Texas, where he was born. Dur­ing col­lege at the Univer­sity of Texas, Austin, he spent sum­mers and school breaks work­ing at the com­pany. Af­ter grad­u­at­ing in 2010, he joined Tree­his

Town full-time. “I’d much rather be on the farm in boots and work­ing with peo­ple than in the of­fice,” he says.

When de­mand for trees fell fol­low­ing the crash of 2008, David, who was fund­ing Tree­Town him­self, re­sponded by let­ting some acreage go un­planted and post­pon­ing main­te­nance. But by the sum­mer of 2014, although the re­ces­sion was long past, David was still un­will­ing to spend, and some Tree­Town ex­ec­u­tives wor­ried that the com­pany had pulled back too far. Un­less it started plant­ing soon, it wouldn’t have enough prod­uct later to keep up with com­peti­tors. That’s when Jonathan made his move to take over the com­pany.

Once in con­trol, he im­me­di­ately started to ex­e­cute his strate­gic plan, which called for $10 mil­lion in im­prove­ments partly fi­nanced by lines of credit with Bank of Amer­ica and Wells Fargo. He also hired a new chief fi­nan­cial of­fi­cer and hu­man re­sources di­rec­tor and set up merit-based bonuses for em­ploy­ees. Then he went shop­ping for ac­qui­si­tions. Soon af­ter buy­ing Tree­Town, he learned about a trou­bled tree farm in Bun­nell, Florida, and bought it for $5 mil­lion in Oc­to­ber 2015. In Fe­bru­ary 2016 he bought a smaller Florida farm that pro­duces palm trees.

He also set about im­prov­ing the com­pany’s tree-man­u­fac­tur­ing process, gear­ing op­er­a­tions to data and ef­fi­ciency. Tree farm­ing is a highly com­plex form of man­u­fac­tur­ing in which nu­mer­ous vari­ables, in­clud­ing the econ­omy and the weather, must be man­aged care­fully over long pe­ri­ods of time. The Texas and Bun­nell farms have cus­tom­ized au­to­mated pot­ting lines that pro­vide the pre­cise amount of soil and fer­til­izer each seedling re­quires. In month- ly meet­ings, Saper­stein and his team tweak pro­duc­tion fore­casts, based on de­mand data from cus­tomers and the lat­est growth numbers from the fields. The trees are grown in con­tain­ers, and as they ma­ture, they are moved to larger con­tain­ers to pre­vent them from get­ting root­bound. The com­pany’s most pop­u­lar tree, an Em­pire Live Oak, comes in con­tain­ers rang­ing from five gal­lons, which whole­sales for $21, to 670 gal­lons, which goes for $5,100. Saper­stein must fore­cast de­mand a decade in ad­vance to de­ter­mine how many trees to sell at each stage. He also has to fig­ure out how to ar­range those that re­main so they can be main­tained ef­fi­ciently. “You take a Ru­bik’s cube and throw it in the blender,” he says with a laugh. Saper­stein is now rolling out hand­held de­vices at all of Tree­Town’s farms to bet­ter an­a­lyze la­bor costs and com­plete work or­ders.

Mean­while he con­tin­ues to buy farms. In Septem­ber, af­ter 18 months of ne­go­ti­a­tion, he ac­quired Vil­lage Nurs­eries, a Cal­i­for­nia grower with more than 900 acres un­der cul­ti­va­tion. The $75 mil­lion deal, paid for with a com­bi­na­tion of cash from op­er­a­tions and debt, more than dou­bled Tree­Town’s rev­enue. It also fur­ther diver­si­fied the com­pany. Vil­lage Nurs­eries’ spe­cialty is shrubs, such as aza­leas and philo­den­drons, which grow more quickly and cheaply than trees. Its lo­ca­tion in the coun­try’s largest nurs­ery mar­ket gives Tree­Town a new cus­tomer base of West Coast land­scap­ers and re­tail­ers.

Saper­stein says a greater va­ri­ety of prod­ucts will help him in­crease sales to ex­ist­ing cus­tomers—and should also help him with­stand the next re­ces­sion. “If the mar­ket slows down,” he says, “you have more flex­i­bil­ity.”

Un­like his fa­ther, who was hop­ing for a quick IPO and exit, Jonathan plans to be in the tree busi­ness a long time. “We don’t have eq­uity part­ners, so no one is telling us to grow at a cer­tain rate per year,” he says. Even if prices were to drop by a third, he says, Tree­Town would still have pos­i­tive cash flow, al­low­ing him to buy more farms.

What wor­ries him? “My big­gest fear is that we are go­ing to get com­pla­cent,” he says, “and that’s what we won’t al­low to hap­pen.”

Branch man­ager: Up­start CeO Saper­stein is shak­ing up a tra­di­tional busi­ness with tech­nol­ogy.

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