Teaming Up: Working with a Concessions Prime or Joint Venture

Teaming Up: Working with a Concessions Prime or Joint Venture

Agenda Learning Objectives About SFO Overview of Partnering/Joint Ventures How the Airport Reviews and Monitors a Joint Venture Panel Discussion Q&A 2

Learning Objectives Understand the benefits and risks of partnering. Learn FAA requirements for joint ventures (JV) with Airport Concessions Disadvantaged Business Enterprise (ACDBE) participation. Hear directly from ACDBE joint venture participants, and ask them your questions! 3

Learning Objectives Baseline Questions 1. May the majority Joint Venture partner have full governance control? 2. Do majority partners typically fund all of the capital needs for a concession? 3. Is your business ACDBE certification important to a majority partner? 4

SFO Passengers and Programs 2017 Passengers Total Airport Passengers 55,800,000 Passengers Per Day 152,966 Concessions Program Food & Beverage Sales $253.2 Million Retail Sales $126.7 Million Duty Free Sales $114.5 Million Average spending per enplaned passenger $13.63 Capital Improvement Program $7.4 Billion 5

Green Beans Coffee Three Twins Ice Cream 6

The Benefits and Risks of Partnering Benefits: Access to airport concession opportunities ability to participate in larger leases Gain some knowledge and airport operations experience Some protection from risk Likely assistance with financing majority partner may finance up to 90% Important Considerations: All aspects of the agreement Limitations on authority Pro forma 7

The Benefits and Risks of Partnering Risks: Assigned a specific role Lack of exposure to full responsibility Limited learning potential Limited influence on daily operation Generally used only to fulfill an ACDBE or small business goal Agreements may tie small business to larger firm for extended period 8

Where to Find Partners Airports Visit and network concessions operations Pre-proposal Conferences National Conferences Airport Minority Advisory Council (AMAC) www.amac-org.com Airport Revenue News http://arnconference.com/ Airports Council International http://www.aci-na.org/ 9

ACDBEs and Joint Ventures What is an ACDBE? Airport Concession Disadvantaged Business Enterprise (ACDBE) means a concession that is a for-profit small business concern (1) That is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged or, in the case of a corporation, in which 51 percent of the stock is owned by one or more such individuals; and (2) Whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it. (49 CFR Part 23.3) 10

ACDBEs and Joint Ventures What is a Joint Venture? Joint venture means an association of an ACDBE firm and one or more other firms to carry out a single, for-profit business enterprise, for which the parties combine their property, capital, efforts, skills and knowledge, and in which the ACDBE is responsible for a distinct, clearly defined portion of the work of the contract and whose shares in the capital contribution, control, management, risks, and profits of the joint venture are commensurate with its ownership interest. Joint venture entities are not certified as ACDBEs. (49 CFR, Part 23.3) 11

ACDBEs and Joint Ventures The Airport reports ACDBE participation to the FAA, including: Goods and services used in businesses conducted at the Airport, and Direct ownership arrangements, including joint ventures and franchises Joint ventures can be structured as any type of legal entity: Partnership Corporation Limited liability company Other legal structure 12

ACDBEs and Joint Ventures (JV) Parties to a JV must be firms, not individuals. Joint venture entities, themselves, are not certified as ACDBEs. Larger firms often seek out ACDBE firms as joint venture participants. When an ACDBE performs as a participant in a joint venture, the airport may count a portion of the gross receipts equal to the distinct, clearly defined portion of the work of the concession that the ACDBE performs with its own forces towards its ACDBE goals. ACDBE firms must be certified in the type of work to be undertaken by the JV. Certified firms may request that a trade be added to their certification without having to submit a new application, but they must verify the disadvantaged owner s control in the additional type of work. 13

How the Airport Reviews and Monitors Joint Ventures The Airport will review and must approve all joint venture agreements before they may be counted towards ACDBE goal achievement. The Airport will assess, on an ongoing basis: That each party brings real and substantial value to the joint venture enterprise (both tangible and intangible assets). That each party contributes: capital commensurate with its ownership interest, knowledge and skills relative to the portion of the JV s business for which it is responsible, and efforts to the success of the venture, with skill sets whose value is objectively apparent and verified by the Airport. 14

How the Airport Reviews and Monitors Joint Ventures Each party must share in the profits in proportion to its ownership interest. Calculation of profits Distribution of profits (timing and method) Each party must share in the risks (financial, legal, operational, etc.) of the business in proportion to its ownership interest. Guaranteed draws limit or eliminate risks and are not permitted. Each participant in the joint venture should have control in proportion to their ownership interest and proportionate control of the governance of the joint venture, including demonstrating that the ACDBE firm has the power to control employees with respect to the performance of the ACDBE role. Each joint venture partner should assume full responsibility for executing each element of the work assigned to it. 15

Review of Baseline Questions 1. May the majority Joint Venture partner have full governance control? No, each participant should have control in proportion to their ownership interest and proportionate control of the governance of the JV. 2. Do majority partners typically fund all of the capital needs for a concession. No, each partner should contribute capital according to their ownership interest. 3. Is your business ACDBE certification important to a majority partner? Yes, primes often prefer partners that are ACDBE-certified. 16

Joint Venture Partner Panel Ebon Glenn, President AimHigh ESG Manuel Soto, IV, President Skyline Concessions Njambi Mungai, President JR Lester & Company Michael Washington, President Palazzo Concessions Joe Waller, President & CEO Pacific Gateway Concessions

Questions and Comments 18

Resources FAA Joint Venture Guidance (available on FAA s website) https://www.faa.gov/about/office_org/headquarters_offices/acr/bus_ent _program/dbe_program_adm/media/jvguidefinal508.pdf For ACDBE Certification, contact Kamal Hubbard Kamal.Hubbard@flysfo.com (650) 821-5142 http://www.dot.ca.gov/hq/bep/business_forms.htm Thank You! 19