Over the last few years, American businesses have faced a growing number of challenges—from a national labor shortage and supply chain disruptions, to increasing inflation. Food and beverage companies have faced correlating challenges, particularly amplified labor and product expenses, resulting in inconsistent profit margins for many businesses.
Despite these challenges, quality deals are still possible for food and beverage owners that are interested in growing or selling their businesses, as there is an active market for mergers and acquisitions (M&A) within the F&B marketplace. This is being driven by acquirers who are holding record amounts of capital and seeking meaningful sale opportunities.
F&B businesses that are looking for new avenues of growth or preparing for exit strategies should prioritize several key strategies when searching for a potential growth partner or seller.
Demonstrated History of Excellent Performance and Consistent Financial Stability
Most importantly, acquirers favor steady histories of established, sustainable profit margins. Sellers that are able to emphasize a track record of success and consistent growth in all economic environments will find a more advantageous deal.
When evaluating businesses, the following characteristics are critical to help secure favorable transactions for the buyer and seller through both economic expansions and recessions:
- Strong value proposition and competitive differentiation: This emphasizes the value and benefits customers can expect from choosing your business and highlights what makes your company stand out in the market.
- Leading market share: This indicates your company holds a significant portion of market demand within your industry.
- Loyal customer base: A group of customers who consistently choose your brand can predict future sales and growth.
- Tech-supported solutions: Leveraging technology can enhance your products or services, providing innovative advantages to improve efficiency and effectiveness.
In addition to the above, healthy profit margins, return on investments, ability to withstand economic challenges and a minimal reliance on external capital investments to achieve growth are also important. Ultimately, having a comprehensive financial growth strategy and a defined plan for how the owner will achieve stable profit margins will have the most impact on high valuation and favorable deal outcomes.
Experienced Team Members and Detailed Succession Planning
Human capital is critical for success in any business, including within the F&B sector. Businesses that have competent and experienced leaders, tenured staff, and low turnover, demonstrate fewer new-hire costs post-transaction, increasing the valuation. When a company’s team has demonstrated an ongoing history of efficiency and success, buyers can expect the same under new leadership following a transaction.
A qualified and experienced management team ensures leadership continuity under new ownership, and frequently results in a higher valuation for the seller. Acquirers will have to take on more risk if customers, staff, and success are interwoven with the owner, so cultivating a holistic management team that can perform day-to-day operations without the owner has the potential to greatly impact the value of a business during a sale.
This is one area where many business owners underestimate the importance of a proficient and strong management team in favor of technical analysis and financial due diligence. Sellers will often find that an experienced team is just as critical to success because it typically produces a profitable, efficient, and flourishing business environment, with or without the owner.
Devoted Customer Base and Extensive Market Reach
A dedicated customer base will also increase the valuation of a business, as it presents a steady source of recurring revenue. This is key in reducing the risk of revenue loss. A devoted, loyal customer base also suggests that the business has developed a good reputation for delivering quality products and services, increasing the prospect of repeat business and referrals.
In the current market, acquirers are becoming more cautious and risk averse, which they’re mitigating by pursuing deals with companies that are supported by a 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.
Broad end market exposure also presents significant opportunities for growth and expansion. A business that has established a presence in one market can capitalize on that success to venture into new markets, diversifying revenue streams and reducing the risk of being dependent on a single market or industry. Broader end market exposure also builds brand awareness and visibility, making it more appealing to potential customers, partners, and acquirers.
A Captivating Narrative
Serial acquirers see countless opportunities for acquisitions every year so identifying the most valuable opportunities can be challenging. If a company hasn’t appropriately positioned their narrative, opportunities can get lost in the noise. This is where financial advisory firms can be valuable as they’re experts on finding narratives that are compelling, but often overlooked.
As food and beverage owners and entrepreneurs consider growing or selling their businesses, it’s important that they evaluate the many critical factors that will influence the overall success of their business – from a solid history of success, to a qualified management team, to a dedicated, diverse customer base. Businesses should also consider how support from an advisory firm can help them build a consistent and appealing narrative that will help them achieve the best possible results.
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.
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.
