Over the past 20 years, I have personally helped incubate many food & beverage companies in the US retail food market, making them attractive acquisition targets to both private equity and strategic food corporations.
Green Seed North America’s sales and marketing team have been instrumental in developing the US market strategy and US sales growth for many food companies that eventually resulted in some very successful sale transactions.
Our international case studies of success include: Siggis Icelandic Yogurt that sold to French dairy giant Lactalis, UK’s Pukka Herbs that sold to Unilever, Violife the Greek non-dairy cheese brand was acquired by Upfield, and UK’s Quorn meat-free foods enjoyed transactions with UK private equity and eventually sold to Asian food giant Monde Nissan. In each case the US sales performance and future growth
opportunity in America (underpinned by Green Seed’s role), made them an even more attractive target for investment or acquisition.
But post-pandemic, how is the landscape today for these types of deals? Is this a good time to raise capital or even sell your food business? What are the key metrics that today’s investor or acquirer is looking for?
According to Nick McCoy of specialist US M&A advisory firm, Whipstitch Capital, the pandemic dropped the number of food M&A deals by 40%, as deals went ‘on pause,’ but by midsummer things began to slowly recover. By the end of 2020 the value of M&A deals was significantly higher than Q4 2019.
The good news is that food company valuation levels remain strong, with no indication of poorer valuation multiples for early stage companies for both raising capital and selling out right.
It is clear that large US strategic acquirers are certainly open for business. Through the COVID period, many of the big consumer product companies generated significant increases in cash; many have paid down debt and now are very much looking for acquisition deals. Also deals are moving faster, with M&A teams now prepared to carry out due-diligence and execute transactions ‘on Zoom.’ In 2021 it
appears they will continue to pay premiums for attractive growth food companies.
But the trend is that Big Food Strategics are now making fewer investment “bets,” favoring acquiring companies with a proven growth record in on-trend categories, rather than smaller speculative investments. They typically have a preference for the larger scale opportunities, typically aiming for food companies with sales greater than, or trending towards $100 million.
The US economic climate remains positive for food companies; with the COVID stimulus checks for consumers, persistently low interest rates for raising funds via debt, and also over a trillion dollars of private equity capital looking for growth investment opportunities.
Private equity remains competitive in the M&A food space and is also prepared to pay premium acquisition prices for quality growth companies. In many cases private equity can move faster and outbid strategic food companies with investment packages that are often more creative and attractive for owners and management teams.
So, what are acquirers and investors looking for in smaller, earlier stage, emerging food businesses?
In the US we would define a smaller food company as having sales in the $20 million to $50 million range.
In smaller niche food businesses investors typically look for:
- A good leadership team
- Consistent sales growth
- Brand and products that are differentiated
- Operating in an attractive, on-trend category, where ideally sales are incremental to the category, with the brand attracting new category users
- Good product velocities (rates of sale) when compared to the competition
- A company that’s focused on one category, and is not too stretched
- Proven success in a few of sales channels e.g., natural retail, grocery and club, but not too stretched. Still with room to expand.
- Good retail distribution levels e.g., 30-50% of the retail universe, but still with room to expand the footprint to more stores
- A good retail block of products in-store and room to expand with new products
- Great products with healthy repeat purchase rates, with room to deepen consumer penetration to become mainstream
- Ideally healthy EBITDA margins in the 15-20% range and/or a path to greater profitability
With most or all of the above checked off, a higher valuation of 3x sales and 10-15x EBITDA might be expected in the current climate.
After the uncertainty of 2020, the US M&A market appears to have fully recovered and now strengthened. The Food and Beverage sector is clearly seen as an attractive segment for the investment community. Last year, we were all reminded of the simple pleasure of preparing meals and eating at home, with this in mind the investment community’s interest in food companies and brands has been reenergized.
Since 1991, Green Seed North America has been a leading food and beverage incubator with a proven track record of investing in and helping local start-ups and international brands to enter and grow in the US market. Green Seed provides a full suite of sales & marketing services to brands to suit their growth strategies. From seed investment, to regional and channel-specific sales support to national high impact launches, Green Seed’s experienced team of professionals have capability across multiple trade channels and retail categories. To discover how Green Seed Group can help your brand, get in touch.