The Industry Report: what is it that makes your company valuable?

In the past two years in the last two years, the Australian sector of food and beverages has grown at approximately 4.3 percent per year, while some sub-sectors are posting high-risk growth. A senior adviser, Mark Ostryn from Groves & Partners, analyses an increasingly competitive market and the implications for those looking to sell or purchase.

The ultimate financial goal of most entrepreneurs in the food and beverage industry is to be purchased by a significant firm. A profitable exit is considered to be a reward for their ambition and dedication, as well as determination, and for overcoming distribution and supply issues.

While only a fraction of owners can achieve this, there have recently increased sales for businesses.

”(In 2020 the year 2020, there are over 100 transactions reported in Australia, and ample national and international food and drink businesses often pay a premium price for more miniature food and beverage companies with high-quality assets and intellectual property.

In the year 2020, there were over 100 transactions that were reported in Australia and the United States, with significant international and domestic food and drink companies typically paying higher prices for smaller food businesses with high-quality assets or intellectual property)”

But, given the recent economic turmoil, there are concerns that business in the field of food and beverages volume and value is likely to decrease.

Similar to previous declines in economic activity, these worries could be unfounded since good assets, intelligent individuals, and the potential to expand in the future will attract buyers. Private equity investors have shown no willingness to pay premium prices for food companies that have assets of high quality.

A slowdown in the market may cause larger companies to purchase known brands, products or intellectual property than increase organic growth.

Who are the potential buyers?

The majority of sales for business were done by giant food companies as well as private equity. For instance, Arnott’s Group (Diver Foods), Endeavour Group (Joseph Chromy Wines), JBS Australia (Rivalea, Huon Aquaculture), Lion (Fermentum Group ), Bell’s Brewing), and Treasury Wine Estates (Frank Family Vineyards).

Industry

Private equity companies like Quadrant, TPG Capital, and Liverpool Partners looked to more specific markets, focusing on food technology and alternative proteins.

Brands that exuded positive vibes, primarily catering to the active and healthy generation Y, attracted a lot of attention.

Most transactions occurred in alcohol-based drinks, snack distribution of food services, fish, and other seafood.

(Brands that promoted optimism and appealed explicitly to the active, healthy young people drew lots of attention.)

There was also an acquisition-driven focus on innovation in product and brand, especially in plant-based food products, healthy snacks, ready-to-eat meals, and high-quality “human quality” dog food.

Buyers can be broken into four primary groups.

1 . Large food and Beverage Businesses

They may have been Australian-controlled or subsidiaries of companies from overseas. With the primary goal of increasing their shareholder values, the businesses are always looking to improve and expand. Their primary buying motivations are:

Intellectual Property

Purchase innovative brands and products from existing companies instead of wasting time, money, and resources on developing rival products. Recent sales transactions and capital increases on “hot markets” like plant-based food and regenerative farming techniques confirm this.

Geographic

A buyer may seek an established business in a specific location like premium food products from Tasmania or wines produced in a particular region. In contrast, acquiring Select Fresh Group by Costa Group allowed the company access to West Australian markets and state modern Warehouses in Perth.

Consolidation

This is where the aim is to get economies of scale via revenue synergies and cost reductions. For instance, Nature One Dairy’s acquisition of Nepean River Dairy provided much more capacity.

Market Share

This is a good possibility for buying individuals to market a more comprehensive selection of products to its current clients and sell its existing products to new customers. Recently, acquisitions made by Lion have allowed brands like Little Creatures and Four Pillars access a larger market.

Customer/Channel

A buyer may be looking to buy a business from an entirely different area in the supply chain to gain greater control through vertical and horizontal integration. The amalgamation of Oceanic Agencies, a significant player in packaging seafood and packaging, into Close the Loop Group allows the group to offer the complete package solution.

Key People

Buying a business and securing the skills of its employees can count on a large scale, especially in the foodstuff and drink organization, where the founder’s reputation or the charisma or technical expertise of employees could be a significant selling feature.

Product Expansion/Diversification

It is the case when an acquirer is seeking an opportunity to diversify or increase their current products. Aaron Zerefos’s acquisition of DrinkScene has allowed an alternative milk distributor to expand its offerings into more extensive non-alcoholic drinks. The pie maker, Patties Food, diversified into health food items by purchasing Fitness Outcomes.

Defensive

Achieving a competitive advantage can help the buyer’s position in a market.

2. Large Non-Food Companies

Some strategic acquisitions did not come from the food and beverage industry, and there could be reasons for an unrelated business, such as a non-food or beverage company, could make such a move.

In 2021, fitness and training company F45 bought its family-owned Australian nutritional supplements firm True Protein to distribute its products via its network of over 1700 fitness centers across the globe.

3. Private Equity

Private equity uses private investment funds to purchase all or a part of businesses in food and beverages. They are looking to enhance their financial performance by operational measures or synergies to other related acquisitions before selling them off.

Private equity was involved in various 2021 deals, including Accolade Wines (Carlyle Group) buying Rolf Binder in premium wines and Open way Food Co. (Five V Capital) taking over Annex Foods, Metro Foods as Table of Plenty.

Private equity funded by corporations is a growing alternative to boost growth. This is most evident in 2022. Businesses like Australian Plant Proteins, EVR, Lauds, Fenn Foods, All G Foods, Harvest B, and Fable Foods are all receiving investments or sales.

Industry
Open way Food Co. started with more than $100m in turnover and 150 SKUs by acquiring three companies with backing from Five V Capital. Pictured is CEO Andrew Loader with some of the products acquired. (Image supplied by Open way, Benny Capp)

4. Private Investor

This class of non-strategic buyers comprises private owners/operators who buy drinks and food-related businesses and then direct management or the appointment of one of their operational managers.

The more significant the company’s efficiency for sale is and the smaller its dependence on its current owner, the more valuable it is.

These acquisitions usually result in the most expensive sale prices, as the gains, an investor outside of the company increases by purchasing a company are likely to be smaller than those of a strategic buyer.)

But it is, the more efficient the business for sale, the less dependence on its owner, who is currently in charge, and the more valuable the company is.

Eight assets determine the potential future success and growth of an enterprise:

  1. Financial: Effective management systems are established to oversee production, cash flow, inventory, and OPEX/CAPEX.
  2. Product: A well-known product line that is a solid seller of products driven by market demand, With an ongoing pipeline of new products.
  3. The Customer: Understanding what entices customers and the factors that build and maintain their loyalty.
  4. People: Businesses committed to their employees build loyalty and productivity by investing in and encouraging them.
  5. Systems: Well-organized both internal and externally-facing digital platforms to control processes ranging from food safety and cybersecurity threats.
  6. Competitive: A strategy for the growth of the business as well as the necessary technology and partnerships to support multi-channel operations.
  7. Brand: Positive public perception of the entire brand, from ethical ingredient sources to cooking tips.
  8. Intellectual Property: It can range from the form of “secret sauces” that help retain customer loyalty to formalized and organized complete knowledge of the company’s CRM.

Next Steps

Food and beverage entrepreneurs planning to sell their business must think long-term and create goals. Three fundamental questions you should ask:

  1. What is my current business worth?
  2. What is my ultimate goal in exit value, and at what time do I want to retire?
  3. How can I close the gap in value between 2 and 1?

By Mia

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