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August 14, 2019; San Antonio Express News

TRTF Community House, a subsidiary of the Texas Research and Technology Foundation, a San Antonio nonprofit that drives economic development around emerging technologies, announced its purchase of an 88-year-old lumber and hardware company, Allen & Allen. TRTF Community House doesn’t plan to change anything about the company, except to direct its profits to TRTF Foundation and other charities the current owners may wish to designate.

Community House is targeting “legacy businesses” valued between $20 and $30 million for purchase (the “middle market” in business lingo). Legacy businesses are family-owned operations without an heir who is interested in taking over. Many of the owners of these businesses are approaching retirement age and have no clear exit plan. A competitor might step in, or private equity, but often such sales lead to unforeseen changes—the business may be moved or merged with a larger competitor, leading to loss of local jobs and the end of the line for the business. A number of nonprofits see this as an opportunity to expand employee ownership, but that isn’t the goal of Community House.

Community House is pitching another alternative. The nonprofit will buy the company and keep the name, management, staff, and money in the local area. The only change will be that any surplus that isn’t invested back into the business can be funneled to the nonprofit.

The current owners of Allen & Allen, Buzz Miller and Cody Peña, didn’t want to sell to a competitor who would move the business out of town. They were thrilled with the offer from Community House, because “they were going to leverage our management, our 88 years in business, and keep it going.”

TRTF’s plan to use the acquisition of businesses through Community House to support the foundation is based on a model employed by the local community foundation, the San Antonio Area Foundation. John L. Santikos, who owned local theatres and other real estate assets, left his various businesses to the Foundation, which now manages them through a subsidiary, Santikos Enterprises. All of the profits go to the foundation, which, according to the San Antonio Express News, “distributes the funds to charitable causes outlined in Santikos’ will.”

Community House hopes to continue to buy one or two legacy businesses a year, to create a steady funding stream for TRTF projects like its $227 million redevelopment of a former industrial site on the east side of San Antonio. But nonprofits should be cautious in buying for-profit businesses. Will TRTF be completely hands-off? What if it wants the company to grow its surplus for the foundation? What if the businesses it buys pursue strategies that are in conflict with the nonprofit’s values or mission? The income from the businesses may be a terrific way to “reach sustainability” as CEO Randy Harig told the local newspaper, but it may also be a bigger headache than he expects.—Karen Kahn