Strategy 2: grow larger so you can "write the check" for major acquisitions.

• Author: Devening, R. Randolph.
• Position: Corporate Finance

R. Randolph Devening Executive Vice President & CFO Fleming Companies, Inc.

Business: Wholesale food distributor

Tow assets: $2 billion

Credit rating: Baa/Bbb

With annual sales at $12 billion, Fleming is now the nation's largest wholesale food distributor, serving more than 5,000 stores in 36 states. We provide retail customers with national brands of grocery products, private-label items, perishables, and general merchandise. The industry itself is a $92 billion-per-year industry at the wholesale level, encompassing 240 companies. Fleming currently has a 13-percent market share.

As we began the 1980s, Fleming was the second largest company in the industry, with sales at $2.8 billion - well behind Super Value. other major players at that time and today are Wetterau, Nash-Finch, and Scrivner; all but Scrivner are publicly held companies. The industry was fragmented. There were more than 400 wholesale companies, and volumes were smaller. Capitalizing on economies of scale became more important to increase buying power and provide technical support to retailers. The capital requirements were increasing. And stores were becoming larger and required more investment. The major players had to get larger and stronger or face a very limited future. The seeds of consolidation were sown.

Fleming saw this as an opportunity. We adopted a strategy of developing a balanced capital structure using a variety of financial tools to take advantage of the consolidation. We wanted to be able to write the check for major acquisitions.

We took steps to become better recognized by the financial community so we could access capital more easily as opportunities arose. We felt that, if we were successful, we would be able to improve our P/E ratio and increase shareholder value.

Fleming rose to the top of the industry primarily through the steps we took to capitalize on expansion opportunities. For instance, in the early '80s, we went to the financial community to establish ourselves before we needed substantial financing. We applied for and received commercial paper ratings from Standard & Poor's and Fitches at the 2 level. We've nurtured our relationships with the financial community over the years, and this has been instrumental in our ability to move quickly to capitalize on major opportunities.

Buy,buy,buy

In 1980, Fleming had total assets of $345 million and shareholders' equity of $122 million. Our long-term debt combined with capital lease obligations...