Mergers and acquisitions symbol. Concept words 'M and A - Mergers and acquisitions' on wooden cubes on a beautiful white background. Business, mergers and acquisitions concept. Copy space.

By Michael Richter and Adam Fiedor at GLC Advisors

The past few years have come with a fair amount of challenges for American businesses – from labor shortages to supply chain disruptions to increased inflation. Food and beverage companies in particular have felt the impact from these challenges, taking on increased labor and product costs, ultimately culminating in constantly fluctuating profit margins for many businesses. 

Fortunately, as F&B companies continue to struggle with these challenges, quality deals are still possible for companies with proven track records, solid growth potential, and successful brands to tell their stories. 

Now, several months into 2023, investment bankers and financial advisors are identifying an active environment for mergers and acquisitions (M&A). Acquirers are holding record amounts of capital and are actively courting quality sellers. Food and beverage businesses planning growth or exit strategies can prepare for success by prioritizing the following strategies when searching for a potential growth partner.

Proven record of excellence and stable financial performance

First and foremost, buyers are seeking a consistent history of strong and sustainable profit margins. In pursuing a favorable deal, sellers must find creative and powerful ways to emphasize a track record of success and consistent growth in all economic environments.

Below are a few top qualities that buyers seek when evaluating businesses through both economic expansions and recessions: 

  1. Value proposition and competitive differentiation
  2. Leading market share 
  3. Consistent and loyal customer relationships
  4. Viable tech supported solutions

Acquirers are also looking for strong profitability, high return on capital, resilience to economic obstacles, and minimal outside capital investments to achieve growth. Ultimately, businesses that prepare a defined plan for sustainable profitability and a comprehensive financial forecast model that demonstrates considerable profitability have the best chance for high valuation and favorable deal outcomes. 

Experienced staff and management and succession planning

For many food and beverage companies, human capital is essential for success. Businesses with qualified management teams, long-term, consistent staff, and low turnover indicate minimal new hire costs for acquirers, which increases the valuation of a business. When a staff has demonstrated a consistent track record of success and efficacy, acquirers can expect the same under new leadership post-transaction.

When pursuing favorable deals, many business owners will overlook the importance of the management team in favor of technical analysis and financial due diligence. Often, an experienced, skilled team is just as critical to success because it produces a profitable, capable, and successful business environment, with or without its owner. As acquirers continue scaling the business post-transaction, a management team that will continue to successfully operate the business under new ownership will be a major advantage moving forward. 

A good day-to-day management team ensures leadership continuity under new ownership, and usually results in a higher valuation for the seller. An acquirer will undertake more risk if the customers, staff, and success are interwoven with the owner, so developing a complete management team that can perform daily operations without the owner has the potential to greatly impact the value of a business during a sale.

Loyal customer base and broad end market exposure

A loyal customer following will significantly increase the value of any business because it provides a stable base source of recurring revenue. This reduces the risk of revenue loss if one or a few customers were to discontinue their business relationship with the company. A loyal customer base also suggests that the business has developed a strong reputation for delivering quality products, increasing the likelihood of repeat business and referrals.

In the current market, acquirers are increasingly risk-averse. Acquirers are increasingly mitigating risk by seeking companies with a wide and diverse customer base from a variety of end markets. If just a few customers account for more than a quarter of company revenue, the impact on value can be significant.

Further, broad end market exposure provides significant opportunities for growth and expansion, which is attractive to acquirers. A business with an established presence in one market can leverage that success to expand into new markets, diversifying revenue streams and reducing the risk of being dependent on a single market or industry. Moreover, broader end market exposure increases brand awareness and visibility of a business, making it more attractive to potential customers, partners, and acquirers.

A compelling story

Serial acquirers see a high volume of M&A opportunities each year. Identifying the most attractive opportunities can be difficult, and if a business’s story or brand is not appropriately positioned or told in a compelling way, opportunities often get lost in the noise. Financial advisory firms can help bring stories to light that are often overlooked without financial advisory expertise.

As owners and entrepreneurs in the food and beverage space consider taking businesses to market, they should consider the impact many of these drivers will have on the outcome of their business – from a proven record of success to a successful management team to a loyal and diverse customer base. And, importantly, businesses should also consider adding support from an advisory firm such which can help sellers tell their stories in a consistent and appealing way, helping them further achieve the best results possible.

Michael Richter is a Managing Director and Co-Head of the Business Services and Industrials Team at GLC Advisors. Michael has dedicated his career to advising business owners across a wide range of industries on mergers, acquisitions, debt and equity financings and strategic advisory assignments. His passion for assisting entrepreneurs has led to the highest standard for providing hands-on, senior level advice, which has resulted in the ability to consistently achieve outlier results. 

Adam Fiedor is a Managing Director and Co-Head of the Business Services and Industrials Team at GLC Advisors. Adam has over two decades of transactional experience ranging from mergers and acquisitions to private capital raises for various middle market companies. He is a strategic advisor to entrepreneurs and management teams with a demonstrated history of creating value to all stakeholders. He is passionate about assisting entrepreneurs in navigating the complexities of M&A and capital markets.

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