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Direct South to Merge with Citisco and Update Management Team

In a pair of separate announcements made at the same time, Direct South Inc., a Macon, Ga.,-based foodservice equipment and supplies dealership, announced plans to merge with another dealership and to update its management structure.

Direct South plans to merge with Citisco Foodservice Equipment, a Macon, Ga.-based foodservice equipment and supplies dealership. In a seemingly unrelated move, Danny Truelove, the dealership's president, will become chairman of Direct South's board of directors. Longtime executive Nick Adams will become the president of Direct South.

According to Truelove, as part of the merger agreement between the two dealerships, the owners of Citisco will receive shares of Direct South stock. As a result of this transaction Direct South will then own Citisco. In addition, Truelove said Citisco's current management team will remain active in the business and its owners will have a seat on Direct South's board of directors.

"It is a fabulous opportunity for both of us. You could not draw this up any better," Truelove said. "And when you look at the integrity of the owners, well, their philosophies are the same as ours. Sure you can merge with a lot of dealers but you have to have the right people. They had to have some depth in the organization, too."

Truelove said the companies are working on their due diligence, which he hopes will wrap up by the end of the month. From a business perspective, Truelove feels the two companies complement each other well. In its current state, Direct South is able to handle a lot of project work for government-related customers like schools but it lacks the GSA status that would allow the dealership to sell smallwares or other replacement items to these customers once the initial job wraps up. Citisco, in contrast, is a GSA-approved vendor and can make smallwares and replacement sales to the operations once they are up and running, according to Truelove.

So Direct South and Citisco, while part of the same company, will continue to operate under their own brand names once the merger is complete. A third sibling division, Restaurant and Kitchen Supply, which Direct South launched three years ago, will continue to handle internet and showroom sales for the company, according to Truelove.

In addition, the merger comes at an interesting time for Direct South, which is preparing to transition in a new president in Adams, who spent the past eight years as a company vice president, and switch to an employee stock ownership plan.

"I have been working on an exit strategy for the last eight or ten years. Nick has been with us 11 years and I hired him with the expectations that he would take my place, but he did not know this at the time," Truelove said. "Over time, the employees will own 100 percent of the company. And that was a part of my exit strategy, too. If owners are willing to wait for their money, an ESOP is the perfect way to do it. It is a blessing to be able to give the company to your employees. And the day we announced the transition to an ESOP we saw a difference in our employees because they are now owners."

Truelove adds that just because he is transitioning into a new role, that does not mean he plans to exit the business. "I don't intend to retire. I have spent the past four or five years training Nick and our other leaders to take over," Truelove said. "I am moving on to special projects and Citisco is one of them."

Direct South reported 2011 revenues of $14.14 million and Citisco reported 2011 revenues of $10.57 million, according to FE&S' 2012 Distribution Giants Study.