Excerpt from the 2017 Food and Beverage Whitepaper: The Future of Food: Meeting Consumer Demands with Sustainable Resources
GHJ Growth Strategy and Value Planning Managing Director David Horwich sees sustainability and social responsibility practices as a potential enhancement to a company’s profitability. This can lead to a higher sales price and greater buyer confidence in a transaction. “In terms of conserving scarce resources, solid sustainability practices always help the bottom line if done well,” Horwich says. “That translates into higher profitability and a more valuable business.”
Sustainable practices may or may not drive a deal, but they are definitely an added bonus.
“If given two alternatives where one engages in sustainable practices, the buyer may ‘better view’ the acquisition or merger target that engages in sustainable practices,” Horwich explains. Horwich also feels that beyond sustainability, there is currently heightened awareness in the food and beverage industry regarding transactions. “The Amazon/Whole Foods deal is a catalyst for a lot 0f companies looking at themselves,” Horwich expands. “They are now asking: How am I going to compete with a new, disruptive business model? Do I need to change my business model? Do I need to consider a merger or acquisition to enhance my business model? Is this the time to consider selling? Are there opportunities that are presented by this disruption that I might be able to take advantage of and how do I organize my company in order to do so?” Horwich gave an example of the types of inquiries GHJ is getting from food and beverage companies on this topic. “We heard from a company that supplies products to grocery stores,” Horwich says. “This company’s executives are concerned about how
the Amazon/Whole Foods merger will affect them. With the potential consolidation in the grocery business, they are worried that bigger buyers will create a demand for better pricing deals, which will lower their margins.” So what should food and beverage companies be doing to prepare for potential changes in the industry as a result of the Amazon/Whole Foods deal or other systemic changes? “Every company, whether they are thinking of a deal or not, should be looking at their business model and their sales strategy and thinking about whether they are working in practice or just on paper,” Horwich notes. “They should be getting timely information and reports that are providing accurate visibility into the future. They should be looking at their management team and whether it will take them where they need to be.
These are hard conversations to have, but they are necessary as you consider the company’s future.” Another important consideration is getting an independent, unvarnished assessment of a company, its business model, management, systems, reporting and sales strategies. “Our team looks at a business model through the lens of ‘if I bought this business, how would I make it better? What products, practices, and processes would I continue to enhance and what would I fix?’” Horwich explains about providing these assessments. The basic deal building blocks to a successful food and beverage deal are:
- Have the books and records in shape
- Have them reviewed by an independent accounting firm
- Have a management team that will show well in a process
- Have forward-looking projections that are both enticing to parties but realistic in nature
“The worst conversation to have midtransaction is the one that begins with ‘we missed our numbers last month,’” Horwich adds. “Buyers get full value from having credible forward-looking financial projections, but it’s a balancing act — you want the buyer to be excited about the deal, but you must have credibility in the financial projections. It is an art, and it takes strong experience from a deal advisor. That is what we provide at GHJ.”