Gregg Engles is not famous yet. But I’ll place my bet that, as business pundits begin to understand what he has accomplished in the last eight years, he will be. From scratch, Engles has put together Suiza Foods, soon to be renamed Dean Foods, a $10 billion enterprise with 30,000 employees that has transformed the dairy industry. The transformation is analogous to what Herb Kelleher’s Southwest Airlines accomplished in air transportation and what Sam Walton’s Wal-Mart did in retailing. The dairy business will never be the same.
As a longtime business observer, what I find most fascinating is how a smart, capable person becomes consumed by a business opportunity so big that both the business and the individual grow to levels unimaginable once even to him. Sam Walton someday hoped to have four Wal-Marts. Herb Kelleher was a hard-working San Antonio lawyer. But somehow their businesses became the men, and the men became the businesses. They worked constantly and, arguably, enjoyed no outside lives. Kelleher’s and Walton’s stories are well known. Gregg Engles’ story is worth hearing.
One thing I’ve noticed is that impressive educational credentials often dampen the entrepreneurial spirit. People who are well educated find it too easy to get challenging, well-paid jobs. That’s why many of the most successful people in America usually graduated from places like Aardvark Junior College-when nobody will hire them, they have no choice but to start their own companies. Engles, who recently turned 44, graduated with a degree in economics from Dartmouth in 1979 and a law degree from Yale in 1982, after which he served as a clerk for then-appellate judge, now Supreme Court Justice Anthony Kennedy.
As a Yale Law graduate and Kennedy’s law clerk, Engles could have written his own ticket at any major law firm in America. Instead, in the year that he was a law clerk, Engles wrote a business plan for a new company and began trying to raise money. Somehow his excellent credentials didn’t hold him down.
His search for money brought him to Dallas. Engles’ unheard-of idea was timeshare for corporate and personal aircraft. Engles came to see Mort Meyerson, who had made a fortune at EDS working for Ross Perot. Meyerson was looking for deals and, in fact, had set up a personal investment department. Meyerson told Engles that his idea would not work but that Engles was exactly the kind of bright, energetic go-getter he was looking for to work with him. Engles accepted the job offer and shelved the aircraft timeshare idea. Today he keeps his business plan on his desk as a mute reminder to kick himself for not sticking with it. Timeshare for private aircraft is now a huge business. With a rueful smile Engles will point out that Warren Buffet’s Berkshire Hathaway bought Richard Santulli’s NetJet for a neat $725 million. Engles thinks he could have done the same thing.
While Engles was working for Meyerson doing "private equity" (making substantial investments in private companies), Engles met Bob Kaminski who was working on real estate deals for Meyerson, who was Kaminski’s equity partner (read: the one with the money). Long story short, Engles and Kaminski went out on their own to do real estate deals in 1985.
The timing couldn’t have been worse. Real estate immediately began a free fall, which cost the American taxpayer a few hundred billion and cost Engles and Kaminski their net worths. The two of them once again started looking at "private equity," a hot market in the eyes of lenders and investors. Of course, Engles and Kaminski needed other people’s money, since they had none of their own.
In 1988, Southland Corporation (7-Eleven) was leveraged to the hilt as a result of an ill-advised, management-led leveraged buyout. Southland needed to raise cash. Basically everything was for sale except the core 7-Eleven business. With little to lose, Engles and Kaminski put together a bid for Reddy Ice, the subsidiary company that produced the bags of ice all of us have bought at 7-Eleven.
Engles and Kaminski managed to get reimbursed for their expenses through the deal, then used that money as their equity along with a small amount of money they had raised from other investors. Of the $26 million price tag, almost all of it was borrowed. "So you did it on a shoestring?" I ask Kaminski. "More like a skinny thread," he replies.
In spite of the bankruptcies of its two biggest customers, 7-Eleven and Circle K, Reddy Ice consistently met earnings expectations. Reddy Ice began acquiring other ice companies under the guiding light of Gale Bershears, who had run the ice operations for 7-Eleven. All of the subsequent growth and success of the new enterprise stemmed from the financial straightjacket that 7-Eleven had strapped itself in.
Kaminski is seven years older than Engles and was the more experienced businessman of the two. They were partners, but Kaminski was the senior. Kaminski says that at some point he started feeling a little like Michaelangelo’s art teacher must have felt. Kaminski realized that Engles was an exceptionally talented deal guy and thrived on it. Gradually Kaminski, as well as their other partners and investors, began to defer to the younger man’s ability to analyze the numbers and rearrange pieces of the business puzzle.
At 7-Eleven, Gale Bershears’ brother, Tex Bershears, had run the dairy operations. Tex convinced Engles and Kaminski that the dairy industry was ripe for the same sort of consolidation that Reddy Ice had executed in the ice business. The difference would be that the dairy business is much bigger, about $30 billion, in contrast to ice, which is a $500 million industry.
In 1993, under the guiding light of Tex, the partners made their foray into the dairy business by purchasing Suiza Dairy in San Juan, Puerto Rico. Engles says that as strange as it sounds, the dairy industry has a lot in common with the ice business-both transport a refrigerated product that deteriorates rapidly if the refrigeration goes out-so they felt comfortable with it.
Since that small start, Engles has spent most of the subsequent eight years in negotiations and on airplanes consolidating the dairy industry. One of the keys to his consolidation has been the simultaneous consolidation in the grocery industry. Here in Dallas, for example, Tom Thumb was bought by Randalls, which was bought by Safeway. Big companies are eager to reduce their number of vendors. The Albertsons and Safeways of the world are delighted with the growth of Suiza, because it means that they have fewer dairy producers to deal with and fewer checks to write.
I asked Engles if there were ever a moment in which he saw himself transforming from a deal guy to an operating dairyman. The short answer is no. He sees himself as an executive who attracts good operators. If all his operating people vanished tomorrow, he would not for a second think to operate the business himself. He would find other people to do the very specialized work required to keeping the milk flowing. Doing deals and attracting well-qualified people, Engles believes, are his two strengths.
Kaminski was happy to evolve from Engles’ teacher to his confidant and now to well-rewarded observer, a little like Paul Allen, Bill Gates’ original partner. Kaminski continues to keep his fingers in a lot of pies; for example, he negotiated the deal and led the team that created Lone Star Park. (He is also an investor in D.)
People who meet Engles frequently describe him as "scary smart." When you talk to him, you feel like he’s registered everything you have said-and maybe everything you know. He is well informed, without seeming like a know-it-all. Physically he is so average that he is hard to describe: a 44-year-old white male, average height, average weight, no distinguishing features. What distinguishes him is his air of intelligence.
On the personal side, Engles has been married 16 years to Cindy. They live comfortably but not ostentatiously in Highland Park. Neighbors undoubtedly describe him as a clean-cut, nice guy.
All of which misses the question I’m interested in: what made Engles work around the clock to dominate the dairy business? Nobody seems to know. It must be a highly effective combination of ego, intelligence, and ambition.
I think that many people have a major "opportunity" appear before them in their business lives, and for whatever reason they back off. In some cases, it seems too risky. In other cases, they are content with their present lives, and they don’t want to work 80 hours a week or play God with other people’s careers. They really don’t want to become consumed by and wedded to their businesses. I know I don’t. But I do want to own stock in people who want to live that way, and I own shares in Suiza.
Gregg Engles may burn out or make a horrible error in judgment. But he’s only 44, and he is rich. His stock and options are worth $100 million plus, according to the company’s proxy materials. But I don’t think he is through by any stretch. There are all sorts of licensing and marketing opportunities open to the country’s dominant dairy company. Coca-Cola, for example, has indicated a desire to market dairy-based products. Suiza has already announced deals with Hershey and Folgers. Unlike the dot.coms of the world, Engles’ company makes real money. And it is steady. Every morning millions of children get up and pour milk into their cereal bowls.
Very few of us envy people who work all the time. But as investors, those are the people we should look for.
Shad Rowe is a former Forbes columnist and partner at Greenbrier Partners.