The financial dream of most enterprising food and beverage business owners is to be bought by a large company. aThe lucrative exit is seen as pay off for their vision, perseverance, hard work and overcoming supply and delivery challenges.
While only a small fraction of owners achieve this dream, recently, business sales have increased.
In 2020, there were over 100 reported transactions in Australia, with large domestic and international food and beverage companies often paying premium prices to smaller food companies with quality assets or intellectual property.
However, with the recent economic instability, there are fears that the sales volume and value of the food and beverage business will decline.
As with the previous slump in economic activity, those fears may be unfounded as quality assets, smart people, and future growth potential will always attract interested buyers. Private equity has shown little hesitation to pay premium prices for small food companies with quality assets.
In fact, a slowdown in the business environment may prompt large businesses to acquire proven products, brands or intellectual property rather than risk organic growth.
Who are the buyers?
Many commercial sales were made by large food companies and private equity. For example, Arnotts Group (Diver Foods), Endeavor Group (Joseph Cromy Wines), JBS Australia (Rivalia, Hyun Aquaculture), Lion (Fermentum Group, Bells Brewing), and Treasury Wine Estates (Frank Family Vineyards).
Private equity groups including Quadrant, TPG Capital and Liverpool Partners looked to more specialized markets, particularly in alternative protein and food technology.
The largest number of transactions were in alcoholic beverages, snacks, food service delivery, plant-based food and seafood.
Brands that expressed positivity, especially those catering to the active, health-conscious millennial demographic, garnered a lot of interest.
There was a strong acquisition focus on product and brand innovation, especially in plant-based food products, healthy snack foods, ready-to-eat meals, and even high-quality “human grade” pet food.
Buyers can be divided into four main groups.
1 Large Food and Beverage Business
They can be Australian-owned or subsidiaries of foreign businesses. These companies are constantly looking to innovate and expand, with the primary goal of increasing shareholder value. Their main buying objectives are:
Purchasing innovative products and brands from existing businesses rather than risking the time, cost and resources of developing competing products. Recent sales transactions and capital increases in “hot markets” such as plant-based foods and regenerative farming methods bear this out.
An acquaintance may be looking for a strong business in a particular location, such as the premium foods of Tasmania, or the wines of a specific region. In contrast, the acquisition of Select Fresh Group by the Costa Group gave the company access to the Western Australian markets and state-of-the-art warehouses in Perth.
This is when achieving economies of scale through cost savings and revenue synergies is the goal. For example, Nature One Dairy’s The acquisition of the Nepean River Dairy provided a lot of potential.
It is attractive to its existing customer base as well as to acquaintances who sell a wide range of productsIn the form of selling existing products to new customers. Recent acquisitions by Lion have given brands like Little Creatures and Four Pillars access to a wider market.
An acquirer may be willing to purchase a business in a different part of the supply chain to ensure greater control through vertical or horizontal integration. merger of ocean agencies, aClose the Loop Group allows the group to provide end-to-end packaging solutions, a leading player in seafood packaging.
Getting a business and gaining the specialist skills of its personnel means a lot, especially in the food and beverage industry where a founder’s reputation, or the charisma and technical prowess of key employees, can be a major selling point.
Product Expansion / Diversification
This occurs when an acquirer is looking for an opportunity to diversify or expand its existing product offering. Aaron Jerfos’s acquisition of DrinkScene enabled the alternative milk distributor to diversify into a wider non-alcoholic beverage, while pie maker Patty’s Food diversified into health food by purchasing Fitness Results.
Capturing a competitive threat can strengthen the buyer’s position in the market.
2. Large Non-Food Businesses
Not all strategic acquisitions came from within the food industry and there may be strategic reasons why a non-food and beverage business would do so.
In 2021, fitness training company F45 purchased family-owned Australian nutritional supplement group True Protein, with the aim of distributing the product through its network of 1700 fitness studios globally.
3. Private Equity
Private equity uses private investor funds to acquire all or part of the food and beverage businesses. They seek to improve their financial performance through operational measures or synergies with other related acquisitions prior to their disinvestment.
The private equity was involved in several 2021 transactions, including Accolade Wines (Carlyle Group) acquiring Rolf Binder in premium wines, and Openway Food Company (Five V Capital) acquiring Annex Foods, Metro Foods and Table of Plenty.
Corporate funded private equity is one option to aid in rapid growth. This is especially so in 2022, with all businesses including Australian Plant Protein, EVR, Lodds, Fen Foods, All G Foods, Harvest Bee, and Fable Foods receiving investments or sales.
4. Private Investors
This category of non-strategic buyers includes private owners/operators who purchase food and beverage businesses and either manage them directly or employ an operations manager.
These acquisitions typically produce the lowest sales multiples, because the incremental profit that an outside investor would receive from buying the business is likely to be lower than that of a strategic buyer.
However, the more efficient the business is for sales, and the less dependent it is on the current owner, the more valuable that business is.
There are eight key assets that determine the potential future growth and profitability of aBusiness:
- financial Effective management system to manage production, inventory, cash flow and OPEX/CAPEX.
- the product A recognizable, solid sales range of products driven by market need, along with a pipeline of new products.
- Customer – Understanding what excites customers as well as what builds and maintains their loyalty.
- People Businesses that value their employees and inspire loyalty and performance by investing in and motivating them.
- system – Streamlined internal and market-facing digital platforms to manage processes ranging from cyber security to food safety risks.
- competitive – a vision forRequired partnerships and technology as well as business development to enable omni-channel operations.
- brand A positive public perception of all aspects of a brand, from ethical ingredient sourcing to food preparation tips.
- intellectual Property – This can range from the “secret sauce” that benefits and preservesFor customer loyalty, formal and organized proprietary knowledge of company CRM.
Food and beverage owners planning an exit need to think long-term and set goals. You have three basic questions to ask:
- What is my business currently worth?
- What is my target exit rating and when do I want to exit?
- How do I close the price difference between 1 and 2?
This opens up a range of strategic questions to be addressed in future articles.
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